Mortgage turmoil deepens as Santander pulls loans and interest rates could rise again

Santander has become the latest major lender to temporarily pull mortgage deals for new borrowers, as a Bank of England policymaker warned that more interest rate rises “cannot be ruled out” to fix decades-high inflation.

The bank announced a temporary pause on some mortgage applications amid “changing market conditions” – days after HSBC and Nationwide also removed loans to make way for price hikes.

HSBC mortgages are now back on sale through brokers, although its rates have increased by between 0.10 percentage points and 0.45 percentage points.

Santander said it plans to relaunch a full range of mortgage products on Wednesday and would not be accepting new applications for its existing loans.

The average rate on a new two-year fixed mortgage has continued to creep up and stood at 5.86% on Monday, according to Moneyfacts, compared to 5.26% last month.

Jonathan Haskel, an economist and external member of the seven-person Monetary Policy Committee (MPC), hinted there was more bad news on the way for borrowers.

Writing in The Scotsman, he spoke of the “difficult judgements” faced by the Bank of England in bringing inflation down to its 2% target.

“Things look better than a few months ago.” he wrote. “But inflation remains much too high.”

He acknowledged that higher interest rates lead to higher borrowing costs, such as on mortgages and business loans, during a cost-of-living crisis.

“We understand that will be difficult for some people and it’s an important consideration in our policy decisions."

The MPC hiked the UK interest rate to 4.5% last month, the 12th increase in a row since rates began rising in December 2021.

Mr Haskel said the MPC’s decision-making has been made harder by the fact there is no "similar experience from the recent past to draw on".

Inflation has not reached the recent high levels since the 1970s and 1980s, before the Bank of England became independent and the MPC’s inflation target was introduced.

It followed fellow policymaker Huw Pill admitting the Bank’s economic forecasting models have led to mistakes over its inflation expectations, which have been too low.

Mr Haskel added: "My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out."

HSBC UK chief executive Ian Stuart said he does not think rates will fall “any time soon.”

“If you took out a mortgage maybe two years ago or five years ago, myself included, you will come off a mortgage rate I would guess around 1.5%, and your new mortgage is going to cost something closer to 5%,” he told Sky News.

“So this is not a subject to be flippant on. This is a very, very important topic in UK society today.”

The interest rate turmoil has forced lenders to revise their loans to keep up with rising costs.

Graham Cox, founder of SefEmployedMortgageHub.com, said: “Any bank or building society that comes out cheapest is getting flooded with too many applications to cope.”