Throughout February 2022, mortgage lenders axed 518 products, which is the largest monthly fall in choice since May 2020, during a period before the housing market reopened with aplomb.
According to the Moneyfacts UK Mortgage Trends Treasury Report, the number of mortgage products on the market is down to 4,848, with less choice having implications for low credit mortgage packages and more specialist mortgages.
As well as this, the average Standard Variable Rate increased by 0.15 per cent, which is the highest single monthly rise Moneyfacts UK has ever recorded, with increases to two-year tracker rates, two-year and five-year fixed rates being the highest in years.
The reason for this is a side effect of the first back-to-back set of rate increases by the Bank of England since June 2004, and predicted further increases over 2022 have caused some mortgage lenders to proactively increase their mortgage rates ahead of any expected further increases.
This increase has had a major effect on swap market rates, which lenders often invest in to hedge against rising interest rates but have climbed higher than mortgage rates over February, causing the biggest negative spread between the two since October 1999.
As some providers had not amended their mortgage rates at the time of the report’s publication, there is a chance that other lenders may follow this lead and cause a further reduction in available mortgage products.
One potential mitigation to this is the consultation into the withdrawal of the FPC’s affordability test guidelines first implemented in 2014 along with strict limits on loan-to-income ratios greater than 4.5 times a borrower’s annual income.
The affordability test advice caused lenders to test an applicant’s ability to afford a mortgage three percentage points higher than the one they were actually taking, meaning that affordability tests set at the average SVR would actually test if you could afford a 7.61 per cent mortgage rate.
This could help first time buyers, people on lower incomes and people who are self-employed potentially offset the general effects on mortgage rates, depending on the Bank of England’s decision in May 2022.
