Private Finance’s Mortgage Memo

This
is our take on what is currently happening in the mortgage market. Our views
are often cited in several national publications, including; BBC News, The
Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of
key trade publications, so this should keep you ahead of the curve. If you have
any questions on any of these stories, or would like further information,
please do not hesitate to get in touch.

  • Will lenders shorten their offer lengths?
  • A broken buy-to-let market
  • Another lender enters the 5.5x income market

Will lenders shorten their offer lengths?

Significant rate movements and a challenging economic environment has made it increasingly difficult for mortgage lenders to price their rates accurately and this could lead to a trend in lender’s shortening their offer lengths.

Rates are potentially a little over inflated at the moment, especially as lenders don’t need to be so competitive right now due to the volume of demand and long timescales. This could lead to rates staying flat or even falling slightly soon as many lenders are making quite a large margin on swap rates.

Why some lenders may shorten their offer lengths?

Lenders are having to price their rates for a future period of time, for example the next two years for a two-year fixed rate, whilst at the same time price for mortgages that they are offering now. The offer length is typically six months, during which there could be significant rate movements. Consequently, we may see lenders shorten their offer lengths to reduce the risk of pricing too low and be unprofitable, and also to enable them to price more competitively.

Which lenders are most likely to shorten their offer lengths?

This trend could be something we see especially amongst specialist lenders and building societies (and we have heard murmurs of this happening) as smaller lenders are likely to be more negatively impacted by pricing their rates inaccurately. Some smaller lenders such as building societies already only have offer lengths of three months compared to six which the majority of the high street offer.

A broken buy-to-let market

A broken system in the BTL market has led to us seeing more landlords exiting the market and seeking out other potential property investments with higher yields.

The BTL market over the last 6 months to a year

During this period we’ve seen more of our portfolio landlord clients looking into other investments then their traditional single let BTL properties because they are much less profitable nowadays. This is largely due to tax and other changes in the BTL market, and more landlords are seeking out potential pockets of the market with higher yields, for example semi-commercial, development, HMOs, or holiday lets.

We’ve heard landlords say it would now take them 3 to 4 years just to break even on the costs of tax on profit, the stamp duty and all other costs involved with purchasing the property let alone recuperating the deposit used to buy the property and make a profit.

BTL landlords exiting the market

If landlords were to sell up their BTLs, we could see property prices lowered which could be argued as a good thing especially for first time buyers. However, there needs to be a transition period, because if this process occurs too quickly, many tenants who cannot afford to buy right now will be limited by rental property with higher rental prices due to lower supply of rental houses. We have already seen some landlords passing their higher cost of funding and running of properties onto tenants and the rental market seems quite competitive in many areas, with properties being let within days of being advertised. 

Another lender enters the 5.5x income market

Accord announced this week they will be launching a new residential product range, Boost LTI (loan to income), offering up to 5.5 times income for eligible clients with household earnings of more than £70,000.

This is good news for borrowers looking to maximise their borrowing and the property prices they can reach, but in a tighter affordability environment it is harder than we’ve seen in a long time to achieve these LTIs often.

Accord is a lender with a more common-sense approach so it could open up borrowing levels at rates not previously available to some borrowers, who were having to go to more specialist lenders like Foundation home loans or Kensington mortgages to achieve the higher income multiples they needed.

If you have any questions on any of these stories, or would like further information, please do not hesitate to get in touch.

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