Private Finance's Weekly Mortgage Memo - 19th October 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:
- 85% LTV rates akin to those at 95% pre-pandemic
- Will the restrictive first-time buyer lending landscape impact chains?
- Hope for mortgage prisoners
85% LTV rates akin to those at 95% pre-pandemic
It feels like a different time where 95% mortgages were a key battleground for lenders, however rates at 85% have now increased to around the 3% mark. This last week we have seen Santander increase their 2 and 5-year fixed rates by 0.20% and introduce a 3-year fixed rate for purchase and remortgage clients at this LTV level, with the 2 and 3-year on parity at 2.99% and the 5-year offering at 3.14%. We took a trip down memory lane at client we were quoting at 95% LTV in March and funnily enough Santander’s 2 year fixed at 95% was 2.99%!
- The housing market is full of mixed messages at the moment, huge demand for property and rising prices, yet lenders remain, and are increasingly cautious.
- To achieve the historically low mortgage rates on offer you either need a significant deposit or significant equity in your home – at least 25% and ideally 40%+, such is lenders fear that prices could fall significantly in the coming months.
Will the restrictive first-time buyer lending landscape impact chains?
As the mortgage market continues to be increasingly restrictive at high LTVs and increasingly expensive in terms of rates above 85% it could create implications further down the chain. First time buyers help complete a chain, where there may be several home movers in a transaction a first-time buyer does not have to sell so can complete a chain and allow a transaction to move forward. If the borrowing available to first time buyers (who traditionally only have a 5-15% deposit) keeps getting restricted it could lead to a slowdown in the property market adding the potential for a significant fall in prices, as a drop in people buying entry level property makes it a more difficult market for second steppers.
- As this period of high demand subsides the market will start to increasingly reflect the economic realities at present and moving forward and cautious lending to first-time-buyers and those at higher LTVs is another variable that could lead to slowing growth and a fall in prices.
- With the high demand we have seen of late and the corresponding prices rises some of the savings buyers hoped to get from the Stamp Duty Holiday have been eroded and thus there is less impetus to act between now and March 2021.
Hope for mortgage prisoners
The FCA have a new initiative to assist mortgage prisoners and major high street lender Halifax has come on board, accepting remortgage applications from these borrowers, providing they are with “closed book” lenders – in other words took out a mortgage with a lender who is no longer accepting new applications or product transfers for parts of their mortgage book - and thus they are now unable to remortgage to a cheaper new deal with another lender, as a result of policy and criteria changes across the market. New rules from the FCA will now allow lenders more flexibility to consider remortgage applications from these customers.
- This is good news for the around quarter of a million people who fall into this category.
- With the mortgage market changing and lending becoming more restrictive, we can expect that the number of mortgage prisoners (albeit by a different definition) will increase in the coming months and years.