A number of specialist mortgage lenders have pulled products as a result of market uncertainty, with experts warning that high street lenders may follow suit next week if swap rates continue to rise.
The reaction by lenders is a result of the inflation data released yesterday for the month of April.
Although the level of inflation is falling, the 8.7 per cent seen in April came in above the Bank of England’s forecast of 8.4 per cent, spooking the markets and causing gilt yields to rise as expectations of further base rate hikes increased.
This in turn caused swap rates - a leading indicator for mortgage rates - to sharply increase also.
On Tuesday (May 23) a two-year swap rate was 4.7 per cent, but today (May 25) this has shot up to 5.04 per cent.
Speaking to FTAdviser, Nicholas Mendes, a mortgage technical manager at John Charcol, explained that because specialist lenders and smaller lenders, such as building societies, do not have the same deposit bank as larger high street lenders, they are the first to price these higher swap rates into their products.
“They're the ones which are making reactions now - pulling deals, making changes or increasing [rates],” Mendes said.
“The high street vendors haven't made that movement just yet because they've basically got the funds aside for the time being, but once these get used up, early next week we might see highstreet vendors making those changes as well,” Mendes added.
Sonia swaps
Current | 23 May 2023 | 24 Apr 2023 | 24 May 2022 | |
1 Year | 5.180% | 4.891% | 4.743% | 1.823% |
2 Year | 5.039% | 4.696% | 4.472% | 2.106% |
3 Year | 4.824% | 4.512% | 4.253% | 2.115% |
5 Year | 4.488% | 4.257% | 3.967% | 2.048% |
7 Year | 4.279% | 4.096% | 3.782% | 1.957% |
10 Year | 4.141% | 4.000% | 3.663% | 1.899% |
15 Year | 4.074% | 3.969% | 3.621% | 1.867% |
30 Year | 3.908% | 3.843% | 3.472% | 1.751% |
Updated 25 May 2023 | 12:00 GMT (Chatham Financial)
Yesterday, Lendco emailed intermediaries to inform them that it was pulling all of its existing products from sale in order to “reprice upwards” as a result of a return of “severe volatility” in capital markets.
Likewise, in an update seen by FTAdviser, Platform, the intermediary mortgage brand of The Co-operative Bank, told brokers they would have until 5pm today (May 25) to secure any existing rates.
In the update, Platform asked brokers to “set client expectations accordingly” in response to the changes.
The email explained: “Swap rates appear to have jumped significantly this morning following the latest inflationary data. This could be reflected in new lender rates when repricing which can have the effect of making other lenders rates suddenly move up the sourcing table.
“In turn, a sudden large influx of business for those lenders moving up the table can lead to funds being exhausted quickly and having to withdraw/reprice at short notice.”
Fleet Mortgages followed suit with an email to brokers this morning informing them it was temporarily withdrawing all of its fixed products from the market, as did Foundation Home Loans.
Meanwhile, Nationwide Building Society emailed brokers this afternoon to let them know that it was increasing selected fixed rate products and its tracker rates by 0.45 percentage points.
‘Shades of October’
Many brokers noted the flurry of activity seen today and yesterday has been reminiscent of the turmoil in the mortgage market following Liz Truss’s “mini” Budget back in October.
