Private Finance's Weekly Mortgage Memo - 17th May 2021
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.
- TSB are the first mainstream lender to offer sub 1% 2-year fixed rate mortgage
- Borrowers struggle to find lenders for properties above commercial premises
- Clydesdale increase max loan size at 90% LTV
TSB are the first mainstream lender to offer sub 1% 2-year fixed rate mortgage
We recently saw Hinckley and Rugby building society offer 0.99% on a 2-year Discounted Variable product, and now TSB are the first mainstream lender to go sub-1% in the more mainstream 2-year fixed rate mortgage product type offering 0.99%. It should be noted that this is still only available on remortgage products but marks a symbolic downward shift in the post-Covid lending landscape.
- We believe this will put significant downward pressure on the 2-year fixed rate market, especially as sub-1% rates, even though they are only marginally lower than 1.05%, the previous best rate in this category, creates the perception of a more significant difference and is ultimately a major selling point for the lender.
- With the base rate set to remain low for the foreseeable and swap rates remaining low, lenders can offer these types of incredibly low rates and we suspect the 2-year fixed could go down to as low as 0.95% in the near future.
- This is indicative of the confidence lenders have in the post-pandemic housing market that they are willing to reduce their margins and moreover, with house prices at record highs, lowering rates mean increased affordability, reducing the risk of house price crash as buyers can ultimately afford to pay more.
Borrowers struggle to find lenders for properties above commercial premises
We have seen an increasing number of declines from lenders for properties above commercial premises. This bucks the current trend for lenders across the board, relaxing lending criteria and increasing borrower’s affordability through various measures. We suspect this is do with the fact these properties are deemed far less attractive in the post-Covid lending landscape and thus potentially subject to bigger falls in house prices should there be any shocks to the market – these properties are often smaller, with limited outdoor space and in normal times are subject to various restrictions from lenders regardless. We are particularly seeing more borrowers declined when the commercial element is food based or has a late license.
- With the market as it is lenders can afford to be picky with regards to borrowers and the properties themselves. As demand increases in urban areas (see the Clydesdale changes below) we may see restrictions relax to accommodate renewed demand. Often it is down to valuers’ comments on the future saleability on these properties, so a lot can be opinion based.
Clydesdale increase max loan size at 90% LTV
Another major lender, Clydesdale, has announced further changes that increase buyer’s affordability this week, with some significant changes for higher LTV borrowers – including increasing the maximum loan size at 85% LTV, accepting flats and maisonettes and maximum term to 35 years at 90% LTV. However, most interestingly is the significant increase in loan size, also at 90% LTV for borrowers looking at properties in London and the South East, with larger loan sizes of £540k to £750k now available…
- This latter point is interesting as this region has seen lower increases in house prices comparable to the rest of the country and the discourse surrounding London to date has been buyers leaving for the country and other cheaper urban areas. However, the situation has now changed and with London reopening and people slowly returning to offices there is now increased demand in this region and given the already high property prices, without this increase in loan size buyers would still struggle to get on the ladder without a very significant deposit saved or gifted.
- While a hybridised working from home model is likely to become the norm, the city is a major draw from a social and cultural perspective and while in the midst of the pandemic a bigger garden and more space may have been an attractive option for buyers with Covid in hopefully very much of a retreat we suspect the London property market is going to see significant demand in the coming weeks and months as people want to be back where the action is.