By Andy Bruce
LONDON (Reuters) – British lenders including Nationwide scrambled to raise mortgage rates on Thursday and smaller players temporarily withdrew products, in response to soaring market interest rates following unexpectedly strong inflation data this week.
The moves had echoes of a more severe temporary shutdown of the mortgage market in late September and early October last year, sparked by investor reaction to former Prime Minister Liz Truss’s economic agenda, known as the “mini-budget”.
Nationwide said it would raise its rates on selected fixed and tracker mortgage products on Friday by up to 0.45 percentage points.
Until recently, mortgage rates in Britain had eased over the course of 2023, after spiking in October and November during the mini-budget aftermath.
“In the current economic environment swap rates have continued to fluctuate and, more recently, increase, leading to rate rises across the market. This change will ensure our mortgage rates remain sustainable,” a Nationwide spokesperson said.
At least seven smaller lenders, mostly focused on the buy-to-let market, have pulled or repriced products this week, according to mortgage brokers contacted by Reuters.
“It’s feeling rather eerily like the post mini-budget period last year,” said Jamie Lennox, director of mortgage broker Dimora.
He added that in a normal market, lenders would typically reprice once a month. Nationwide had already announced a re-pricing last week in response to this month’s increase in BoE interest rates.
Britain’s high inflation rate cooled by much less than expected in April, according to data published on Wednesday, prompting investors to ramp up bets on more Bank of England interest rate increases this year.
Government bond yields have soared, representing a sharp tightening of financial conditions in Britain which will be a concern to BoE officials.
The two-year British swap rate, which underpins many lenders’ own financing costs and mortgage pricing for two-year deals, has shot up around 50 basis points so far this week.
If sustained into Friday, it would mark the biggest weekly jump since September 1989, excluding the period around the mini-budget.
Mortgage lenders regularly reprice products in response to conditions in their funding markets, although it is relatively rare to temporarily withdraw or reprice a big block of products, except just after a Bank of England interest rate change.
(Additional reporting by Lawrence White; Editing by William Schomberg and David Milliken)