Santander latest lender to pull mortgage deals as 'missile' hits market

Interest rates on mortgages have increased by 0.5% in just a matter of weeks, worrying lenders.

Santander has become the latest mortgage lender to pause some mortgage applications as turbulent market conditions worry lenders.

The bank plans to relaunch a full range of mortgage products on Wednesday and said that from Monday evening it will not be accepting new applications via intermediary and online channels.

On Thursday last week, HSBC UK made the decision to temporarily withdraw mortgage rates available via broker services, to help to ensure the bank could stay within its operational capacity.

Its mortgages are now back on sale through brokers, although its rates have increased by between 0.10 percentage points and 0.45 percentage points.

Millions face higher interest rates on their mortgages. / Credit: PA

Jeremy Leaf, former chairman of the Royal Institution of Chartered Surveyors, told ITV News “the recent increases have certainly hit like a missile on the market” with many lenders taken by surprise by current market conditions.

Swap rates, which underpin the price of fixed-rate mortgages, have been climbing generally following expectations over inflation and several lenders have increased their mortgage rates in recent days.

According to analysis by financial information website Moneyfacts of the deals currently on the market, average two and five-year fixed-rate mortgages were sitting at 5.86% and 5.51% respectively on Monday, having climbed from 5.49% and 5.17% on June 1.

A Santander spokesperson said: “As we prepare for a relaunch of a full range of mortgage products from Wednesday morning, we will not be accepting new applications via intermediary and online channels temporarily from this evening.”

Why is this happening and what does it mean for borrowers?

Polly Gilbert, from digital mortgage broker Tembo, told ITV News after a sharp uptick in interest rates last autumn they had been relatively stable until recently.

Ms Gilbert said the higher than expected inflation figures in May and subsequent predictions that the Bank of England would raise interest rates to higher than expected led to “panic in the mortgage market.”

This panic led to several lenders withdrawing offers from the market and interest rates on remaining deals rising by 0.5% in just a few weeks, or a £35 per month increase for the average 2-year fixed rate mortgage.

HSBC pulled some mortgage offers last week. / Credit: PA

Mr Leaf said the recent rises would be “particularly hard on first time buyers.”

He said the housing market was “fragile and sensitive” forcing brokers to focus on short term trends when pricing products.

He added: “I would say to any first time buyers or any aspiring first time buyers look very carefully at the offers available because they may very well change by next week.”Ms Gilbert said “the past 8-months have been quite a rollercoaster in the mortgage-world” but noted “life goes on” and demand for mortgages remained stable.

But she noted the increases will lead to more people needing to rely on the bank of mum and dad to get on the housing market.

She said it is hard to predict what it means for the future but “the sub-2% interest rates we became accustomed to during the pandemic are not sustainable, and buyers shouldn’t hold out for their return.”

She predicted rates “between 4-5% are very likely to be the new normal for borrowers.”

It means monthly payments for millions will increase sharply over the next few years.

If someone locked in a 3% rate for a £200,000 mortgage on a 25-year term, and they now face that interest rate increasing to 6%.

Their monthly mortgage costs would increase by over 35% – from £948 to £1,289

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