Private Finance's Mortgage Memo - 26th July 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.
- Low rates driving existing clients to consider remortgage options, even with large early redemption charges (ERCs)
- Rise in Guarantor mortgage enquiries as affordability is reduced by rising prices,
- 2-year rates forced even lower by the fall in the 5-year fixed
Low rates driving existing clients to consider remortgage options, even with ERCs
With mortgage rates at record lows, and continuing to move down, we are seeing a large increase in enquiries from existing clients looking at their remortgage options, despite the fact ERCs (Early Repayment Charges) are often involved. While these can be sizeable, the sub-1% rates on offer represent a significant saving over the life of a mortgage product – a 2-year fixed is now available at 0.91%, 3-year at 0.94% and 5-year at 0.99% and when compared to rates 2, 3, 5 years ago there could be some sizable savings available for clients.
- There are a huge number of different circumstances where a client could benefit from remortgaging on to a lower rate despite paying ERC’s. For instance, they originally had some adverse credit in the background and went to a specialist lender and were thus paying higher rates, their LTV has improved with paying down the mortgage and prices increasing/home improvements so can refinance at a lower loan to value, their income was complex so had to go to a specialist lender but now can take advantage of more mainstream lenders and rates.
- We suspect we will see an increasing number of remortgage enquiries in the coming weeks as more and more people take advantage of this incredibly favourable situation for borrowers.
- Savings will not be available for everyone, and ERCs can be large but if there is 3 years of a rate left, a 3% early redemption charge but a 1.5% per year saving available there are potentially large savings to be made.
Rise in Guarantor mortgage enquiries as affordability is reduced by rising prices,
While a low interest rate environment is good for borrowers, it has contributed significantly in driving up property prices – nearly 10% higher than year ago, especially in combination with the SDLT holiday and changing tastes and needs off the back of the pandemic. This has led to us notice rise in Guarantor and Joint Borrower Sole Proprietor (JBSP) mortgages in recent weeks as borrowers need to take advantage of friends or family member’s higher income to get the house they want.
- With higher house prices across the country, even if you had saved for a sizeable deposit buyers may struggle to get the property they want, and if borrowing is curtailed by their income these products (if they have willing friends or family members) may remain their best option to get onto the property ladder.
- With these types of products, you usually get the exact same rate as a lender offers to their ordinary customers generally, however it defines the lender you have to go to, so often you have to go to a more specialist lender and the rate is often more reflective of that. Linking to the above if you have taken a guarantor mortgage in the past few years but now could afford it on your own it may be worth reviewing your product.
2 and 3-year rates forced even lower by the fall in the 5-year fixed
With the news last week of a 5-year fixed dropping below 1%, this has placed downward pressure on other shorter-term rates and the 2-year fixed is now at 0.91% and the 3-year at 0.94% - astonishingly low rates…
- We suspect we could see the 2-year fixed fall below 0.9% in the coming weeks.
- This is indicative of lenders confidence in the housing market as well as the larger economic environment and the competition for the best borrowers in the market.