Private Finance's Weekly Mortgage Memo - 24th 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.
- Demand for flats and city centre property soars as does BTL mortgages
- Will inflation lead to rate rises soon?
- An offset mortgage renaissance?
Demand for flats and city centre property soars as does BTL mortgages
Recent data from Rightmove has illustrated that flats have seen a 39% rise in buyer demand in April 2021, compared to January 2021 and this is interlinked with city centre demand being up 35% since January 2021 (https://www.rightmove.co.uk/press-centre/first-time-buyer-demand-and-stalled-price-growth-help-city-centres-bounce-back/).
This is hardly surprising given the relaxation of Covid restrictions as people want to be back where the action is, with space to work and gardens becoming less important as the status quo resumes, and this was part of the reason why we believe the next place to see big demand and increases in property prices would be London, especially central London. This data interlinks with the high demand we are seeing for finance from buy-to-let investors, both first time and those with existing portfolios.
- OUR TAKE: Given the lack of demand for city centre flats during the pandemic, you can pick up some bargains despite the house price rises across the UK.
- OUR TAKE: Landlords and investors are looking to try and benefit from the SDLT holiday as there are still savings to be made, even with the additional 3% for second homes. Moreover, with inflation rising and banks savings rates remaining at rock bottom, often below the rate of inflation, investors will be seeking returns and to get their money working.
- OUR TAKE: The BTL mortgage market remains highly competitive and the rates in the market have remained fairly flat in the last year for investors
Will inflation lead to rate rises soon?
There has been a lot of commentary around inflation with rate increasing in April to 1.6%. This was predicted due to the natural bounce back from the pandemic and huge increase in consumer spending that goes hand-in-hand with lockdown easing, however some commentators see it as a long-term threat to stability. Significantly rising inflation matters because, not only does it squeeze peoples purchasing power, it can also lead to increased costs of borrowing as interest rates are one of the core macroeconomic tools used to curb inflation – there is an inverse relationship between the two measures, as interest rates are reduced, people can borrow more and thus spend more and drive up inflation and the opposite is true when rates increase.
- OUR TAKE: We suspect rate rises are on the horizon in the medium term, but are not going to be significant, as the Bank of England still need to encourage growth in the post-pandemic economy. Given the fact first-time buyers have been actively encouraged by the Government to be highly geared, buying at high LTV’s (95%), many have stretched themselves to the absolute limit to buy a property, especially given the huge increase in property prices. Although lenders do stress cases at higher interest rates to make sure things are affordable, rate rises could be a real problem for many…
- OUR TAKE: Banks are currently reducing mortgage rates and relaxing criteria boosting affordability for borrowers, such is the confidence in the housing market and the competition amongst lenders is fierce for borrowers business in period of high demand. We do not see this stopping until there is a rise in base rates and even then, it is likely to only be small and therefore lenders may simply tighten their belts on the margin front to continue to win business.
- OUR TAKE: In what has been a record past few months for mortgage lending, banks have deployed huge amounts of capital and thus need to encourage savers to return and thus are increasing saving rates despite the base rate remaining static.
An offset mortgage renaissance?
A mortgage type that had fallen out of favour somewhat in recent years, we have been seeing increasing demand for offset mortgages of late, as borrowers look to capitalise on the cash they have in the bank and we suspect this interest will continue increase in the coming weeks and months. The likely driving force being savings rates being incredibly low and people feeling more confident in a strong economic recovery and that the worst of the Covid pandemic is behind us, thus they willing to utilise their savings and looking for ways to make the best use out of them. This is good news for lenders and banks who are actively looking to increase the amount of deposits from savers.
- OUR TAKE: An offset mortgage could in effect, if used to the maximum, reduce interest payments to zero, effectively paying you a far higher return than it would if it were in a standard savings account.
- OUR TAKE: While they are not offered by all the mainstream banks and lenders, you do pay a small premium for the service, but rates are the same as whether offset or not.