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HSBC pulls some UK mortgage deals as fears of rising rates hits home buyers once more

Marcel Obioha 170 June 9, 2023
"Persistently high inflation and the recent spike in lending rates will trigger a correction in the UK (Aa3 negative) housing market," Moody's Investor Service said in a report.

LONDON – The U.K.'s biggest bank temporarily withdrew mortgage deals via broker services on Thursday, as the effect of higher interest rates ripples through the British housing market.

HSBC told CNBC Friday that it was reviewing the situation regularly, but did not specify whether the new deals would differ from its previous offerings. Higher rates are a possibility, given that the Bank of England is continuing to increase interest rates.

It comes eight months after hundreds of mortgage deal offers were pulled in one day after market chaos at the time sparked concerns about rising base rates.

In a statement issued Friday, HSBC said: "We occasionally need to limit the amount of new business we can take each day via brokers. All products and rates for existing customers are still available, and we continue to review the situation regularly."

The banking group said the protocol was in order to ensure it meets "customer service commitments" and stressed that it remains open to new mortgage business.

The HSBC decision comes as analysts expect mortgage rates to soar and housing prices to plummet in response to the increased base rate.

A large number of fixed-rate mortgage deals is set to expire this year, leaving homeowners vulnerable to the impact of interest rate hikes, according to economic research company Capital Economics.

The organization made an upward revision to its mortgage rate forecasts, which showed borrowers would be "subject to a larger interest rate shock than … previously envisaged."

"Those coming to the end of a 2-year fix will see a particularly large increase in the cost of their mortgage. While those refinancing a 5-year fix this month may see their mortgage rate jump from 2.1% to 4.9%, those on a 2-year fix will see an increase from 1.4% to 5.2%," Capital Economics said in a note published Thursday.

There are also warnings that house prices will tumble in the next two years, with credit ratings agency Moody's forecasting a 10% decline. 

"Persistently high inflation and the recent spike in lending rates will trigger a correction in the UK (Aa3 negative) housing market," Moody's Investor Service said in a report.

The Halifax House Price Index showed that U.K. house prices were flat in May after a 0.4% fall in April, while the average U.K. property now costs £286,532 ($360,000).

In February, U.K. house prices experienced their sharpest contraction since November 2012, according to building society Nationwide.

Watch CNBC's full interview with the Bank of England's Andrew Bailey

Prices tumbled 1.1% year-on-year, logging their first annual decline since June 2020.

The Bank of England raised its interest rate to 4.5% from 4.25% as the central bank attempts to tackle high inflation that currently sits well above the 2% target, at 8.7%. 

The Organization for Economic Cooperation and Development predicts the U.K. will have the highest inflation rate out of all advanced economies this year.

Lenders and homeowners will be watching the central bank closely for its next base rate decision on June 22. It is widely expected the bank will agree its thirteenth consecutive increase.