Private Finance's Weekly Mortgage Memo - 14th December 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:
- The war on rates begins now confidence returns to the market
- Why we believe London property will boom in the New Year
The war on rates begins now confidence returns to the market
While rates are very low for some mortgage types, these are reserved for the lowest risk borrowers, in other words those with large deposits or large amounts of equity and the ability to borrow at lower income multiples. However, with the return of mainstream lenders to the 90% market, it was only a matter of time before competition on rates ensued and there is now a downward trend in this part of the market, with major lenders such as Nationwide and TSB beginning to make cuts, we expect others to follow as lender pitch for these premium rates before they fall.
- Currently, despite these cuts, the cost of borrowing at this level remains high (>3%), but it has been falling fast so far. We would suggest that providing there are no major shocks to the economy or housing market, rates will continue to fall, but it will take a while to reach pre-pandemic levels as before the return of 90%, lenders were simply not lending in this bracket anticipating a significant fall in prices and now they are anticipating less of a dramatic fall and more an adjustment so to speak and are in effect pricing for a 95% LTV mortgage.
- This change is also linked to a change in demand in the market, leading to lenders having to make these cuts to attract customers and increase the affordability of their products.
- The best rate available currently from a mainstream lender is 3.24% and we believe we will see sub-3% in the near future, however for this to happen 80 and 85% rates will likely need to reduce too which we haven’t seen on a large scale yet.
Why we believe London property will boom in the New Year
There has been a paradigm shift in the property market this year and the home has become, amongst other things, an office, school, and the base for leisure activities… all of which led to people asking big questions about where they live and whether it fulfils their needs. In a lot of cases people answered that question with an emphatic no, and the purchase market has since boomed, helped by the SDLT holiday. This left several people, including us, wondering if cities like London would change in the long term as we saw many clients buying in the countryside to increase their access to space. This has now slowed down, and it was possibly the case that this just pushed moves that were already on the cards forward. The draw of cities is the nexus of labour, social and cultural factors and people have missed out a great deal on the latter two this past year. With the advent of the vaccine and a slow return to normality we believe we will see London property boom as people want to be close to the action again and while the countryside will work for some people it will not for others…
- We have already seen an increase in enquiries in London property this past few weeks and a significant fall in people looking to move out, including less let-to-buy mortgages and the like.
- Do not just take our word for it, Savills, and Knight Frank both predict London property will increase in value by 12.7% and 15% respectively between now and 2024.
- Not all London property is created equally and houses/flats with gardens in central areas (zone 1 and 2) will command an even greater premium.
- With people still likely to work from home, not wanting to get public transport and a drive to encourage people to get out of their cars and cycle or walk, we think the biggest gains will be made in Zone 2 and Zone 3 where people can easily navigate the city and access all it has to offer…once it is open…
- Regardless of Brexit, London is still a major global city, offering some of the world best culture and entertainment and lifestyle and thus will remain highly attractive to national and international buyers alike.