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Private Finance's Weekly Mortgage Memo - 28th September 2020

This is our take on recent news 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.

At a glance:

  • What is “high LTV” lending now? More rate increases and the bracket shifting down further…
  • Is the post-lockdown housing boom coming to an end?
  • Even negative interests are unlikely to put a stop to rate rises

What is “high LTV” lending now? More rate increases and the bracket shifting down further…

It will come as no surprise that we keep seeing lenders increase their rates at higher LTVs given the current climate, with HSBC and Virgin Money being the latest to join an ever-growing list. What is interesting however is how 85% LTV rates are increasing and this bracket is in effect the new 90%. Borrowers will need either have a large deposit or a large amount of equity if remortgaging to benefit from the historically low interest rates on offer.

  • 1.7% is the best rate currently for a 2-year fixed at 80% LTV with straightforward circumstances. This is still highly competitive, but over 0.5% higher than what is possible if you are fortunate enough to have a lower LTV. However. if we consider this example with the cautious approach of a lender and property prices do drop 10%, 1.7% for 90% LTV mortgage becomes an excellent proposition for a borrower…
  • As you get in lower LTV territory rates reduce dramatically and in the last week we have seen a big difference emerge between rates at 75% LTV and at 80% LTV and this could be pushed down further still given the economic uncertainty and of course the spectre of the second wave of Covid.
  • Lenders who are operating at higher LTVs are dipping their toes in the water for one day at a time, with a lot of cautions caveats, such as maximum loan sizes and low income multiples, longer terms and high rates (>3%) with TSB launching a 5-year fixed product at 85-90% LTV for one day only this Tuesday, which we suspect will be highly oversubscribed despite the rates.

Is the post-lockdown housing boom coming to an end?

We have recently had our busiest 4 months on record, both in terms of mortgages arranged and in terms of enquiries, and as we outlined in another recent mortgage memo we have seen a dramatic rise on the purchase side of our business… However, this last week we have witnessed a slowdown and believe this could be indicative of what is to come. The demand behind this boom was driven primarily by three things, the market having been placed into a coma for a couple of months, the Stamp Duty Holiday bringing purchases forward and people looking to make lifestyle changes or purchase second homes and the like following being stuck in the same four walls for so long. The increased levels of restrictions announced this week, a second national lockdown potentially on the horizon and further dire economic warnings may be starting to put the brakes on some buyers making their move just now. Moreover, the mortgage market is becoming increasingly restrictive and so there will simply be a decreasing pool of potential purchasers…

  • The disconnect between the economic reality and this mini housing market boom does look suspiciously bubble like in character… with income multiples being reduced by lenders, and wages likely to stagnate or be depressed for the foreseeable future this rise in prices appear unsustainable and that is without taking into account some of the other economic indicators – a major readjustment could be likely in the very near future…
  • We have however seen an increased number of higher value enquiries of late and, as per any recession, people are not affected equally, and with the mortgage market providing incredibly low rates for those with large deposits we expect this to continue – cash is currently king in this market and so affluent buyers are still looking to make their move, and lifestyle factors will most likely be the key driving force along with a nice £15k saving in SDLT.
  • Now autumn is most definitely upon us and winter not too far away, certain driving factors for people looking to make a purchase, that felt urgent a few weeks ago like gardens and outdoor space are likely to be less of a driving factor now…

Even negative interests are unlikely to put a stop to rate rises

A Bank of England policymaker has recently defended the potential to introduce negative interest rates and whilst there is no indication at this stage that this will happen it very much could as a means to stimulate the economy. This of course is further bad news for savers as banks are likely to pass this negative interest rate on, but it is also not the good news for borrowers that you may expect, unless you are on a tracker or variable rate, as given the state of the economy banks are very unlikely to pass this saving on and will more likely use it is a buffer to increase their margins on riskier lending propositions…

  • It is ultimately deep economic uncertainty that would push the BoE to make this decision, and this is also exactly the reason why lenders are increasing rates… further reinforcing their cautious approach of late…
  • We are unfortunately unlikely to see the -0.5% interest rate introduced by Jyske Bank, the third largest mortgage lender in Denmark last year…
  • We expect mortgage rates to rise as a whole regardless of any further reductions to the BoE base rate for the time being.  

Private Finance's Weekly Mortgage Memo - 28th September 2020

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© Private Finance Limited, 2020. Private Finance provides independent mortgage advice and arranges individual mortgage solutions for clients. Private Finance is a trading style of Private Finance Ltd, 29 Lincolns Inn Fields, London, WC2A 3EG, registered in England no. 3855776 and its Appointed Representatives. Private Finance Limited is authorised and regulated by the Financial Conduct Authority (FCA registration number 310566).

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