HSBC, the largest bank in the United Kingdom, recently announced the temporary withdrawal of mortgage deals offered through broker services. This decision has been influenced by the ongoing impact of higher interest rates on the British housing market. As the Bank of England continues to raise interest rates, HSBC is reviewing the situation regularly, considering potential changes to their mortgage offerings. This move comes after a similar incident eight months ago when numerous mortgage deals were pulled due to concerns about increasing base rates. HSBC clarified that existing customers will still have access to all products and rates, and the bank remains open to new mortgage businesses.
Effect of Rising Interest Rates:
The decision by HSBC reflects the concerns of analysts who anticipate a surge in mortgage rates and a subsequent decline in housing prices due to the increased base rate. Economic research company Capital Economics warns that many fixed-rate mortgage deals are set to expire this year, leaving homeowners vulnerable to the impact of interest rate hikes. Capital Economics has revised its mortgage rate forecasts, indicating that borrowers may face a more significant interest rate shock than previously expected. For example, those approaching the end of a 2-year fixed-rate mortgage could experience a substantial increase in the cost of their mortgage. Similarly, individuals refinancing a 5-year fixed-rate mortgage might witness their mortgage rate rise from 2.1% to 4.9%, while those on a 2-year fixed-rate mortgage could see an increase from 1.4% to 5.2%.
Potential Housing Market Impact:
Analysts also predict a potential decline in house prices over the next two years. Credit ratings agency Moody’s forecasts a 10% decrease in prices. Moody’s Investor Service attributes this anticipated correction in the UK housing market to persistently high inflation and recent spikes in lending rates. The Halifax House Price Index reveals that UK house prices were stagnant in May following a 0.4% decrease in April, with the average UK property currently priced at £286,532 ($360,000). According to building society Nationwide, UK house prices experienced their sharpest decline since November 2012 in February, with a 1.1% year-on-year drop, marking the first annual decline since June 2020.
Central Bank’s Actions:
To address high inflation, which currently exceeds the target of 2% and stands at 8.7%, the Bank of England raised its interest rate from 4.25% to 4.5%. This move is expected to have implications for lenders and homeowners. The Organization for Economic Cooperation and Development predicts that the UK will have the highest inflation rate among all advanced economies this year. As a result, market participants are closely monitoring the central bank’s actions. The next base rate decision is scheduled for June 22, and it is widely anticipated that the bank will implement its thirteenth consecutive increase.
To Sum Up:
HSBC’s temporary withdrawal of mortgage deals highlights the impact of rising interest rates on the UK housing market. As the Bank of England continues its campaign to tackle high inflation, homeowners face potential challenges with increasing mortgage costs. Additionally, analysts predict a decline in house prices over the next two years. It is essential for lenders and homeowners to stay informed about market conditions and the decisions made by the central bank as they navigate these challenging times.
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