FCA contacts banks following huge withdrawal of mortgage deals

The Financial Conduct Authority has contacted UK lenders following the withdrawal of more than 1,600 mortgage products over concerns that millions of borrowers face a sharp rise in interest payments when their existing deals expire.

The watchdog’s supervisors have held talks with most of the big providers over the past week after most high-street lenders pulled fixed-rate products as turmoil hit the markets in the wake of chancellor Kwasi Kwarteng’s controversial tax-cutting, according to people close to the situation.

More than 2mn borrowers with fixed-term products will need to remortgage between now and the end of 2024, according to Bank of England data.

One source said the FCA was asking banks what options borrowers would have when their fixed-rate terms end, as concerns mount over their ability to pay much higher rates in excess of 5 or 6 per cent. The watchdog is working more widely on how the cost of living crisis will affect households. The FCA declined to comment.

Banks and building societies had pulled hundreds of mortgage products for new borrowers in recent days as their business models came under pressure from gyrations in the gilts and swaps markets, which they use to price home loans.

Some 1,621 home loans have been withdrawn since Friday, according to data provider Moneyfacts with a record 935 home loans pulled overnight on Tuesday.

Mortgage providers had initially reacted positively to the Bank of England’s emergency bond-buying programme on Wednesday designed to stabilise the market, raising hopes of a quick return of fixed-rate deals.

But on Thursday, some lenders were delaying the launch of new fixed-rate mortgages over concerns they will be flooded with demand. Atom Bank and OneSavings Bank are among the lenders waiting until at least next week.

In contrast, Virgin Money is planning to come back to the market Friday with higher rate products after withdrawing a week ago, according to a person close the situation.

Andrew Montlake, of mortgage broker Coreco, said lenders were coming back with “significantly higher rates” that were at least one percentage point higher, at about 5.5 per cent. He said Nationwide, HSBC and Scottish Widows were pushing through “some big rate hikes.”

Mark Mullen, chief executive of Atom Bank, told the Financial Times: “The danger is how do you reopen the mortgage market? Now there’s going to be a big pent up dam of customers and a rush.

“We’re thinking about when can we get back safely without being swamped and how do we price effectively, it’s still very volatile. We had hoped to be back at the end of this week, now it definitely won’t be. We’ll look again next week.”

Andy Golding, chief executive of OneSavings Bank, said that the lender would be offering a range of new residential and buy to let deals next week, after pulling them earlier this week.

Golding said: “We pulled our current products yesterday and we’re putting new fixed rate products on the shelf on Tuesday, giving us a couple of days for markets to settle down, so we’ve got a clear steer on where swap rates are and the ability to price the products.”

All the major high street banks have withdrawn some or all new mortgages over the past week, with the exception of NatWest. NatWest said: “We haven’t withdrawn any products this week.”

Additional reporting by Siddharth Venkataramakrishnan