Banks cut mortgage supply amid economic panic

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Home buyers will hit a bottleneck when taking out new loans as lenders are deducting mortgages at the fastest rate since the pandemic-induced housing market stalled.

Banks have responded to growing fears of major home price declines by reducing options for homeowners. According to Twenty7tec, a mortgage website, the number of deals fell by 17 percent between May and the end of July. This was the biggest drop since the spring of 2020, when relocations were effectively banned.

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Lenders withdrew even more offers after the Bank of England announced the largest rise in bank rates in 27 years on Thursday, pushing interest rates to a 14-year high of 1.75 pc. The number of deals is expected to shrink further in the coming weeks, Twenty7tec warned.

James Tucker, of the company, said lenders were closing deals with smaller margins and focusing on less risky home buyers, because of the obscuring economic outlook. This could mean fewer deals with lower deposits being offered, as lending to such buyers is less attractive when house prices fall.

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He added: “Some products make less sense economically when rates are higher. Some buyers will have seen their risk profiles change due to inflation, the changing job market, mortgage defaults and other macroeconomic conditions.”

Twelve major lenders have withdrawn deals since announcing the hike in bank rates, a Moneyfacts analyst said.

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