UK Mortgage Rates: Rises, Deals Pulled & Market Impact – March 2024

The UK residential mortgage-backed securities (RMBS) market is showing signs of strain, according to the latest performance monitor from Fitch Ratings, published in March 2026. While overall performance remains within expected ranges, increasing economic headwinds and rising interest rates are beginning to impact borrower affordability, leading to a modest uptick in early-stage delinquencies. This comes as markets predict further increases in UK mortgage interest rates throughout the year, adding to the pressure on households.

Delinquency Trends and Economic Factors

Fitch’s report highlights a gradual increase in the proportion of UK RMBS loans that are 30-59 days in arrears – a key indicator of early-stage financial distress. While the overall level of arrears remains relatively low, the trend is being closely watched by investors, and lenders. The increase is attributed to a combination of factors, including the cost-of-living crisis, rising unemployment, and the cumulative impact of successive interest rate hikes by the Bank of England. The Guardian reported in March 2026 that markets are anticipating at least four further interest rate increases this year, potentially exacerbating these challenges. Read more about predicted rate rises here.

The situation is further complicated by geopolitical instability. Reports from ITVX suggest that the conflict in Iran has had an indirect impact on UK mortgage rates, contributing to market volatility and uncertainty. Find details on the Iran conflict’s impact on UK mortgages.

Market Response and Lender Actions

In response to the evolving economic landscape, lenders have been actively adjusting their mortgage offerings. Several major banks, including NatWest, Barclays, and Nationwide, have recently increased their mortgage rates, as reported by Yahoo Finance UK. See how sub-4% mortgage rates are disappearing. Simultaneously, a significant number of mortgage deals have been withdrawn from the market, as lenders reassess their risk appetite and pricing strategies. The Independent reported that hundreds of deals were pulled in anticipation of further rate increases. Read about the mortgage deal withdrawals.

NatWest Group plc, a key player in the UK mortgage market, is currently subject to scrutiny regarding its credit ratings. Fitch Ratings provides ongoing assessment of NatWest’s financial health, as detailed on their website. View NatWest Group’s credit ratings from Fitch. The ratings agency assigns a group VR (Viability Rating) to both The Royal Bank of Scotland and National Westminster Bank Plc, recognizing their integral role within the NatWest Group and the capital support mechanisms in place. Further details on NatWest’s credit ratings can be found on the investor relations section of their website. Explore NatWest Group’s credit ratings information.

Impact on Borrowers and the Housing Market

The combined effect of rising interest rates and reduced mortgage availability is placing significant strain on borrowers, particularly those with variable-rate mortgages or those nearing the end of fixed-rate deals. Increased mortgage costs are reducing disposable income and potentially leading to a rise in mortgage arrears and repossessions. The housing market is also expected to cool as affordability deteriorates, potentially leading to a slowdown in house price growth or even price declines in some regions.

First-time buyers are particularly vulnerable, as higher interest rates and stricter lending criteria make it more difficult to secure a mortgage. The reduction in available mortgage products also limits their options and increases competition for those that remain. Existing homeowners looking to remortgage may face higher rates and fees, potentially impacting their monthly repayments.

The Role of RMBS in the UK Financial System

RMBS play a crucial role in the UK housing market by providing a source of funding for mortgage lenders. By securitizing mortgages – bundling them together and selling them as bonds to investors – lenders can free up capital to issue new loans. This process helps to increase the availability of mortgage finance and supports the overall functioning of the housing market. However, it also means that risks associated with mortgage lending are transferred to investors, who bear the potential losses if borrowers default on their loans.

Fitch Ratings’ ongoing monitoring of the UK RMBS market is essential for assessing the health of this sector and identifying potential risks. The agency’s analysis provides valuable insights for investors, lenders, and regulators, helping them to make informed decisions and manage their exposure to the UK housing market.

Looking Ahead: Key Considerations

The outlook for the UK RMBS market remains uncertain, with several key factors likely to influence performance in the coming months. These include the trajectory of interest rates, the state of the UK economy, and the level of unemployment. Continued monitoring of delinquency rates and market conditions will be crucial for assessing the potential impact of these factors. Regulatory scrutiny of the RMBS market is also likely to increase, as policymakers seek to ensure the stability of the financial system and protect borrowers.

Further increases in interest rates, as predicted by market analysts, could lead to a more significant deterioration in RMBS performance. A sharp economic downturn or a surge in unemployment could also exacerbate the challenges facing borrowers and lenders. Investors will be closely watching these developments and adjusting their portfolios accordingly. The interplay between these factors will determine the overall health and stability of the UK RMBS market in the near to medium term.