Private Finance's Weekly Mortgage Memo - 1st March 2021
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.
- Lenders battle for the lowest risk business
- Upcoming extension to the SDLT holiday
- Private banks return at 90%, increased enquiries from landlords, government bond yields increasing – all points to one thing… optimism
Lenders battle for the lowest risk business
While potential high loan to value lending dominates the headlines there is a battle going on for the lowest risk business, as the economy is still under significant stress. There is very little separating the best rates for 2, 3 and 5-year fixed rate mortgage products, all falling within 0.1% of each other, 1.09% for a 2 year and 1.19% for a 5 year, where traditionally a much greater premium was put on the longer-term products.
- The best rates are only available to those at low LTVs and the cost of borrowing increases significantly at higher LTVs, so despite the confidence in the economic outlook and optimism driven by the vaccine rollout, lenders would prefer to be cautious, partly because they can afford to be without losing business on account of the high demand in the housing market.
- Lenders would still prefer borrowers to take longer terms as there is still uncertainty in the economy and 3- and 5-year terms de-risks the lending to a greater extent than a 2-year term.
- The 2-year fixed rate does not have any further to fall and lenders seeking business will reduce rates where they can which happens to be these slightly longer terms. This is possible only as the cost of institutional borrowing remains so low, but we do not expect base interest rates to rise for some time.
Upcoming extension to the SDLT holiday
The SDLT holiday is set to be extended in Wednesday’s budget. It is reported that this will be by 3 months, until the end of June, but there could be various caveats attached as the Government are also desperate to raise money to begin repaying some of the hundreds of billions borrowed because of the Covid pandemic.
- While this is very welcome news for our clients whose purchases are in process and who could have potentially missed the deadline, this will avert the potential for widespread chain collapse, the time frame of the extension could be potentially problematic... This 3-month extension will get buyers who had given up on purchasing to start the process again, and potentially more of them as Covid restrictions relax, and the Spring sunshine and vaccine roll-out fills buyers with optimism. This will lead to the exact same issue that buyers are facing now, just in June.
- Moreover, some buyers who are already in a chain and are experiencing the delays and frustrations that go along with the legal side of purchasing a property may start to get cold feet and as they have more time, they may want to explore other purchase options so chains could collapse and potentially not be repaired in time for the new deadline.
- As a consequence, any medium term could do harm as well as good to market and we would prefer to see a 6 month extension, but there is no easy option for the Chancellor right now - despite the savings from the SDLT holiday being fully eroded by the significant increase in house prices people seemingly would rather pay more for their property and less in tax, and whether it is the end of March, June or further down the line the cliff edge that will come with the end of the holiday is unavoidable... unless SDLT is completely reformed….
Private banks return at 90%, increased enquiries from landlords, government bond yields increasing – all points to one thing… optimism
This last week we saw one of the largest private banks, Coutts, return to 90% LTV – while private banks can offer this LTV ‘behind closed doors’, Coutts are the first to make this information publicly available. We have seen an increasing number of enquiries from landlords and those seeking investment property, as they seek to take advantage of cheaper property in urban areas before cities return with a bang (hopefully this summer – providing all goes well). Lastly government bond interest rates have been increased sharply across the world, as investors’ confidence in the future economic outlook grows…
- These 3 seemingly disparate occurrences are all tied to one thing and that is confidence in the economy and optimism driven by the vaccine rollout, that a return to normality and that potentially high levels of consumer spending is on the horizon…
- Bond yields are increasing from unusually low levels; however, this could impact on the cost of borrowing going forward if these rises continue and thus one question will be posed to central banks, including the BoE in the coming months and years, how to wean the country off historically low interest rates without damaging recovery.