LONDON (Reuters) – On Thursday, the United Kingdom’s largest bank temporarily removed mortgage transactions through broker services, as the impact of rising interest rates rippled across the British housing market.
HSBC told CNBC on Friday that it was routinely monitoring the situation, but did not say if the new packages will vary from past offerings. Given that the Bank of England is still raising interest rates, higher rates are a possibility.
It comes eight months after hundreds of mortgage deal proposals were withdrawn in a single day due to market turmoil at the time, which raised fears about rising interest rates.
“We occasionally need to limit the amount of new business we can take via brokers,” HSBC stated in a statement on Friday. All existing clients’ goods and pricing remain available, and we continue to monitor the situation on a daily basis.”
The banking organization stated that the process is in place to guarantee that it achieves “customer service commitments” and that it is still available to new mortgage business.
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The HSBC move comes as economists predict that the raised base rate will cause mortgage rates to skyrocket and property values to collapse.
According to Capital Economics, a huge number of fixed-rate mortgage arrangements are likely to expire this year, leaving homeowners susceptible to the impact of interest rate rises.
The group revised its mortgage rate estimates upward, indicating that borrowers would face a “larger interest rate shock than… previously anticipated.”
“Those nearing the end of a two-year fix will see a significant increase in the cost of their mortgage.” While individuals renewing a 5-year fix this month may see their mortgage rate rise from 2.1% to 4.9%, those refinancing a 2-year fix would see an increase from 1.4% to 5.2%, according to Capital Economics in a report issued Thursday.
There are also concerns that housing values will fall 10% in the next two years, according to credit ratings firm Moody’s.
“Persistently high inflation and the recent spike in lending rates will trigger a correction in the UK (Aa3 negative) housing market,” stated Moody’s Investor Service in a study.
According to the Halifax Home Price Index, UK home prices remained unchanged in May after falling 0.4% in April, with the average UK property currently costing £286,532 ($360,000).
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According to Nationwide, property prices in the United Kingdom fell sharply in February, the most since November 2012.
Prices fell 1.1% year on year, marking the first yearly drop since June 2020.
The Bank of England hiked its interest rate to 4.5% from 4.25% in an effort to combat excessive inflation, which is at 8.7%, considerably over the 2% objective.
According to the Organization for Economic Cooperation and Development, the United Kingdom will have the highest inflation rate of any advanced economy this year.
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Lenders and homeowners will be eagerly watching the central bank’s next interest rate announcement on June 22. The bank is largely likely to approve its twelfth straight rise.
