Fears grow over interest rate impact on new build

Increasing fears are being voiced over the impact of rising interest rates on the new build sector as average rates topped 6% and TSB became the latest bank to pull its suite of mortgage offers.

The boss of developer Pocket said the rising rates were contributing to a ‘perfecct storm’ hitting developers that was likely to see starts in London, where Pocket works, fall ‘significantly’.

The latest data from data provider Moneyfacts this morning showed that average rates for two year fixed-rate mortgages have continued to rise today, hitting 6.07% this morning, after breaching the 6% barrier yesterday.

The last time interest rates breached 6% was on December 1 last year, in the immediate aftermath of the mini Budget financial crisis. Rates have now risen by an average of 0.8 percentage points since the low reached this year at the start of May, and are just under three percentage points up since this time last year adding hundreds of pounds to mortgage-holders’ monthly bills.

Moneyfacts data also showed that the number of mortgage products available to borrowers dropped sharply again yesterday, with a total of 4,641 products available, down from 4,683 on Monday.

Mainstream mortgage lender TSB yesterday cancelled all of its residential and buy-to-let mortgage products at just three hours notice, promising to come back to the market with re-priced products tomorrow. The news follows growing turmoil in the mortgage market in recent weeks, given the expectation of likely central Bank action needed to combat persistent inflation.

Marc Vlessing, chief executive of London-based first-time buyer developer Pocket Living, said the increasing interest rates were combining with planning delays and construction cost rises to create a “perfect storm” for housing development in the capital. “Demand to get out of rental housing could not be higher but people are struggling with mortgages, so it’s very very difficult.

“I think it’s going to be a really tough year for development in the capital. I expect housing starts in London to fall significantly – some think as much as 50%. London is in a very precarious position.”

The re-pricing of mortgage products comes ahead of a Bank of England Monetary Policy Committee meeting on Thursday this week at which the Bank is expected to once again raise the base rate in a bid to combat rising prices.

The top five listed housebuilders have all seen their share prices drop between 10% and 15% over the last month as the outlook for interest rates has worsened in the light of more persistent than expected inflation numbers.

Rising borrowing costs impact upon the cost of buying a home for mortgaged purchasers. Bellway last week said it was concerned that “the uncertain path of future interest rates could impact housing demand”, with private reservations at the firm already down 30%.

Rachel Springall, finance expert at Moneyfacts, said: “These are worrying times for borrowers who have not seen average rates hit 6% since the turmoil surrounding the fiscal announcement. It is imperative anyone who is coming off a deal seeks advice to go through all the mortgage options available to them.”