Can a loan offer be withdrawn? Rules on lenders removing offers due to falling pound, explained

The value of the pound has fallen behind sweeping tax cuts announced by Chancellor Kwasi Kwarteng in last week’s mini-budget.

It fell to a record low of $1.03 against the US dollar on Monday, before recovering slightly. Experts believe the pound’s decline could force the Bank of England to raise interest rates even further, after raising them to 2.25% last week. Some economists expect rates to hit 6% in 2023.

The economic situation is having a significant effect on mortgage lending. Those with existing variable rate plans will see their monthly payments increase, while people who are reaching the end of their fixed rate plans could see their bills increase significantly.

It is also causing problems for people buying properties, with many lenders offering mortgage deals. Here’s what you need to know.

Can lenders withdraw mortgage offers?

A mortgage offer is a promise that a lender will give you a specific amount of money to finance the purchase of a property under an agreed repayment plan.

Mortgage lenders including Lloyds, HSBC and Halifax have withdrawn mortgage offers to new customers, expecting rates to rise further.

Virgin Money has temporarily stopped offering offers, while smaller lenders such as Kensington, Accord Mortgages and Hodge also withdrew announced offers. Nationwide announced it was raising fares, while Santander said it would increase some deals and cut others.

Lenders have the power to withdraw a mortgage loan offer until the purchase of a property is finalized and you officially become the owner.

However, this power is generally reserved when a material change in circumstances becomes apparent. For example, if it becomes apparent that someone lied in their application process, or if the value of the property changes drastically.

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Those with existing mortgage deals are unlikely to have theirs withdrawn due to the pound’s struggles, industry insiders have said. David Hollingworth of L&C Mortgages said The mirror“I really don’t think pulling offers is where lenders are heading with this.

“The impact of the past few days on the market is in the pricing of new businesses. Borrowers face little choice when looking for a deal right now. But if they have already received a mortgage offer, they shouldn’t worry about it being taken away from them.

Virgin Money said: “Given market conditions, we have temporarily withdrawn Virgin Money mortgage products for new business customers. Existing requests already submitted will be processed as normal and we will continue to offer our product transfer range to existing customers.

“We plan to launch a new product line later this week.”

What are the interest rates?

An interest rate is a percentage you are charged on an amount of money you borrow – or paid on the amount you save.

Your bank account will have an interest rate. Each month, your bank will pay you this interest. For example, if you open an account with £1000 and the interest rate is 1%, after one year your bank will pay you £10.

If you have taken out a loan, you will pay the interest to the person who lent you the money, at a pre-established rate. The same goes for mortgages.

Not all interest rates are equal. The most important is the Bank Rate, which is set by the Bank of England.

The Bank of England explains: “We use the Bank Rate in our dealings with other financial institutions, which influence many other interest rates in the economy. This includes the various loan and savings rates offered by street banks and building societies.

“For example, in 2020 the bank rate was reduced to 0.1% during the Covid-19 crisis. This reduced the rates at which the big banks could borrow money from the Bank of England, which meant they could lend to their customers at lower rates. Banks lowered interest rates on some loans, such as mortgages, but also offered lower interest rates on some savings accounts.

How will rising interest rates affect existing mortgages?

Rising interest rates are bad news for homeowners and those considering buying.

People on a variable rate deal – meaning the interest on your mortgage changes according to Bank of England interest rates – will see the amount they pay monthly increase. Just over a fifth of all mortgage holders have a variable rate deal, meaning around 1.9 million homeowners will be affected by a rate hike.

Borrowers who have opted for a long-term fixed rate offer in recent months will be protected for the duration of the term. However, anyone reaching the end of their fixed rate contract will see their bill increase significantly.

Laura Suter, head of personal finance at investment platform AJ Bell, said: “The biggest increases will be for those who drop out of their fixed rate deal and find they are paying back at a much higher rate, which is costing a lot more every month.”

Alice Guy, personal finance expert at Interactive Investor, added: “Mortgage holders are going to face huge challenges this winter, especially if they have a fixed rate contract coming to an end. the 0.5% rate hike, households with a fixed rate mortgage of £200,000 face a staggering increase of £4,300 more each year compared to September 2020, and £358 more per month.

“Those with a tracker mortgage face a massive increase of £1,000 a year and £83 a month. With so many other rising costs, many families have a tough winter ahead. But those who have paid off their mortgages should see little impact from the interest hike.

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