Private Finance's Mortgage Memo - 2nd August 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.
- The rate war continues…
- Self-employed criteria gradually returning to pre-Covid policy
- Proportion of new mortgages at high loan-to-income increases
The rate war continues…
Halifax have recently entered the battle for the best 2 and 5-year fixed rates on offer, following Nationwide’s market leading offering becoming available last week. The difference is not huge, a fall of 0.01% in both the 2 and 5-year mortgage types, but it does mean the best rates on offer are 0.90% and 0.98% respectively and it marks a continued battle between the major high-street lenders to have the best offering in the market.
- In a previous version of this memo in early July, we suspected we would see the 2-year rate reaching the 0.9% mark and the 5-year the 1% mark, however we may have been being somewhat conservative, as it now looks increasingly likely that we could see rates continue to fall in very small increments of 1BPS as lenders look to find the best clients and get the headlines. 0.85% and 0.95% for the 2 and 5-year fixed respectively does not appear to be out of the ordinary in the coming weeks…
- There is a lot less demand in the market, as housing supply is constrained and thus transaction volume is slowing, pushing lenders to compete harder than usual for the best business that is out there. Moreover, this is indicative of lenders confidence in the housing market, economic outlook and lack of concerns about a potential base rate rise.
- Mortgage profitability for lenders will be declining with rates this low, however some of the mainstream players may be using these low rates to increase market share despite this.
Self-employed criteria gradually returning to pre-Covid policy
Self-employed borrowers were one of the hardest hit by the pandemic as lender tightened restrictions significantly. However, as we have emerged from the crisis with the economic outlook, not as bad as expected due to huge government stimulus packages we have been seeing a slow return to the status quo. The most recent is Metrobank who have opened up their criteria and returned to their pre-Covid policy of using before tax limited company profit calculations, rather than after tax.
- While there is still a higher degree of scrutiny for self-employed applications from lenders, it is now far easier to find these borrowers a competitive product that suits their needs as both affordability has been increased by these recent relaxations of criteria.
- Depending on how Covid affected the business self-employed borrowers may need to approach more specialist lenders, who are able to take a more holistic approach and consider this considering company performance post-lockdowns.
Proportion of new mortgages at high loan-to-income increases
With house price rises at record levels, it is no surprise that borrowers are needing more money to purchase the home they desire, and this extra borrowing is only made affordable on account of the incredibly low rates on offer in the market. Only 6% of all the loans granted in the first quarter of this year were at an LTV of 90% plus, this was naturally curbed by the high rates lenders were offering in this bracket and thus the high cost of borrowing and we have seen a significant rise in 90% LTV enquiries as rates have fallen. However, the proportion of new mortgages at loan-to-income rates at 4.5 x plus have increased to 10.4% from 9.5% a year earlier, edging towards the 15% limit imposed by the regulators (Bank of England, Bloomberg).
- Andy Haldane, the chief economist of the Bank of England has recently described the housing market as being “on fire” and it does appear that nothing now is stopping the insatiable demand from buyers and borrowers, bar the supply of housing stock that ticks all the post-Covid boxes on the market.
- Buyers should not lose sight of the fundamentals especially if they are putting themselves in a highly leveraged position to purchase as they could get a nasty shock when they come to the end of their very low fixed mortgage terms if they find out the housing market can go down as well as up and rates up instead of down…