Mortgage rates soar past 6pc for first time in 14 years as Kwarteng summons bankers

Mortgages Interest Rates House Prices Mini-Budget Kwasi Kwarteng
Mortgages Interest Rates House Prices Mini-Budget Kwasi Kwarteng

The Chancellor has summoned bank chiefs to Downing Street after turmoil in the mortgage market sent rates to a 14 year high and triggered a wave of deals being pulled.

The average rate on a two-year fixed-rate mortgage is now 6.07pc, according to Moneyfacts, the first time the average rate has exceeded 6pc since November 2008.

Lenders withdrew a record number of deals following the mini-Budget after wild swings on currency markets and a big sell-off of British government gilts. Between September 23 and October 1, the number of available mortgage deals fell by 43pc – a loss of 1,703 products.

Chief executives of Britain’s biggest lenders including Barclays, Lloyds Banking Group and NatWest, are to convene with Kwasi Kwarteng on Thursday, at a meeting which is expected to see the Chancellor quiz them on their plans, Sky News reported.

Some banks and building societies are slowly returning products to market, with prices that incorporate much higher interest rate forecasts. However, the number of available mortgage deals on Wednesday was still down 40pc compared with 12 days earlier.

A spokesman for the Treasury said the meeting was “part of ongoing engagement with the financial services sector over recent weeks”.

Turmoil in the mortgage market came after interest rate expectations and government borrowing costs surged as investors were spooked by the mini-Budget.

The Bank of England was forced to intervene to stabilise markets with a £65bn emergency bond-buying programme.

On Tuesday it rejected all bonds it was offered, totalling £400m, at an auction for the second day in a row, suggesting the operation has helped to restore financial stability.

While volatility appears to have eased, borrowing costs remain high. Yields on 30-year gilts initially spiked as high as 4.3pc after the Bank of England announcement, up from around 4pc at the open, before easing back.

The pound also lost ground against the dollar on Wednesday. Sterling jumped close to $1.15 earlier in the day, before dropping back almost two cents in the wake of Prime Minister Liz Truss's speech vowing to defeat those “holding Britain back”.

Financial markets are predicting more pain ahead for borrowers, with a one percentage point interest rate rise to 3.25pc in November fully priced in. Market traders are also betting interest rates will hit 5.5pc by next May.

Policymakers have raised rates seven times since last December, and high street lenders have hiked mortgage rates much faster than they have lifted returns on savings.

Average mortgage rates are likely to continue to increase as more lenders relaunch deals at higher prices. The average rate for a five-year fix on Wednesday was 5.97pc – up from 4.7pc before the mini-Budget, according to data provider Moneyfacts.