Downing Street has called upon banks to safeguard homeowners currently wrestling with escalating mortgage costs as interest rates continue to rise, destabilising the borrowing market. This initiative has been triggered as borrowers receive warnings of additional mortgage rate hikes, with deals being increasingly withdrawn and rates climbing at an ‘unremitting pace’, as reported by broker London & Country. On Monday, Santander became the most recent major lender to pause new deals due to ‘market conditions’.

This intervention follows a weekend in which nearly 10% of mortgages were removed from the market because of concerns about surging interest rates, according to data from Moneyfacts. The numbers suggest that approximately 800 residential and buy-to-let deals were withdrawn, with average rates for both two and five-year fixed deals also experiencing increases.

The rental market is facing comparable difficulties as landlords are seeing their lowest profits in 16 years, largely due to continually climbing interest rates and elevated mortgage costs. Savills, a leading estate agency, disclosed that the Bank of England’s base rate has experienced 12 consecutive increases, leading to higher mortgage costs that are further constricting landlords’ income. In the first quarter of 2023, net profits for buy-to-let investors nose-dived to less than 4%, the lowest since 2007. Cornerstone Tax data underscores these difficulties as only 1-in-5 landlords (20%) claim their investment has been profitable, with a further 20% admitting to losing thousands.

Moneyfacts reports that since the start of June, the average two-year-fixed-rate mortgage has risen from 5.49% to 5.86%, with the average five-year deal also seeing an increase from 5.17% to 5.51%.

According to the Centre for Economics and Business Research, homeowners across the UK will have to pay nearly an additional £9 billion in interest over 2023 and 2024 due to refinancing at rates that are double what they were previously. Approximately 2.5 million homeowners will reach the end of their fixed rate deals over the same period, with an additional one million on variable rate deals.

David Hannah, Chairman at Cornerstone Group International, offered insight into the current state of the property market:

“The escalation in mortgage rates and the withdrawal of mortgages by lenders due to stronger than expected inflation figures spell trouble for homeowners, especially first-time buyers and those nearing the end of an existing deal. These measures are in anticipation of an expected rise in interest rates, which will pose further challenges for borrowers seeking to purchase a property.

“I’m concerned that the rising mortgage costs could be the tipping point for Britain’s landlords. Having now seen their lowest profits since 2007 and faced with increasing government red tape, I wouldn’t fault them for choosing to sell up and cut their losses. Our research indicates that many landlords were ill-prepared to navigate the current challenges in the rental market, as 1 in 5 confess they became landlords without the requisite knowledge and have consequently lost thousands.

“Record levels of unaffordability are already evident in the UK property market and lenders such as HSBC withdrawing mortgage deals will only deepen the plight for potential buyers in the property market.”