Economic and political leaders have failed to ease fears over the pound plunging to an all-time low – with banks and building societies withdrawing some of their mortgages from sale.
Following an adverse reaction to the Tory government’s £45 billion package of tax cuts set out on Friday, sterling fell close to $1.03 early on Monday before regaining some ground to stand at $1.08.
In a bid to calm the jitters, the Bank of England said it “will not hesitate” to raise interest rates to prop up the value of sterling, and chancellor Kwasi Kwarteng announced he would bring forward an announcement of a “medium-term fiscal plan” to start bringing down debt levels.
While the pound was still above its record lows set on Monday morning in early trading on the Asian markets, there were signs fears were spreading – with some UK lenders saying they were halting new mortgage deals.
Three lenders – Halifax, Virgin Money and Skipton Building Society – have so far withdrawn some of their products amid the uncertainty.
Such was the market turmoil on Monday there was growing speculation that the Bank would make an emergency interest rate rise after it hiked rates only last week to 2.25% from 1.75%.
Instead, with the pound fragile and bond prices still tumbling, Kwarteng issued a statement just before the British stock market closed to say he would set out medium-term debt-cutting plans on November 23, alongside forecasts from the independent Office for Budget Responsibility of the full scale of government borrowing.
The central bank welcomed “the commitment to sustainable economic growth” from Kwarteng and the independent scrutiny that the OBR growth and borrowing forecasts would bring.
But fears over increased borrowing costs – and the potentially ruinous impact for homeowners if rates surge – have bedded in.
Virgin Money said: “Given market conditions we have temporarily withdrawn Virgin Money mortgage products for new business customers.
“Existing applications already submitted will be processed as normal and we’ll continue to offer our product transfer range for existing customers.
“We expect to launch a new product range later this week.”
Halifax also said it is withdrawing all mortgages that come with a fee.
“As a result of significant changes in mortgage market pricing we’ve seen over recent weeks, we’re making some changes to our product range,” it said.
“There is no change to product rates, and we continue to offer fee-free options for borrowers at all product terms and LTV levels, but we’ve temporarily removed products that come with a fee.”
The Skipton Building Society said it had also withdrawn its offers for new customers, in order to “reprice” given the market movement in recent days.
A spokeswoman said: “We have temporarily withdrawn our mortgage range to new customers. This is so we can reprice following the market response over recent days. A new range will shortly be back on sale.
“Customers with applications in progress are not affected by this and our existing customer range still remains available.”
In governor Andrew Bailey’s short statement, he said that the Bank would change interest rates “by as much as needed” to get inflation back to its 2% target.
Consumer Prices Index inflation is currently hovering at around 10%, and is expected to peak higher later this year.