Private Finance's Mortgage Memo - 7th September 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.
- Cost of high-level borrowing at record lows – what does it look like?
- Increased building costs having adverse effect on developers and self-build borrowers
- Holiday season and "pingdemic" contributing to delays in lender processing
Cost of high-level borrowing at record lows – what does it look like?
Even those who work in the mortgage industry have been amazed at the low rates on offer at present. For context, the best available 2, 3 and 5-year fixed rates mortgages on offer are all sub-1% at 0.84%, 0.89% and 0.94% respectively. These low rates extend to high levels of borrowing, and it means that currently you could in theory and in the right circumstances borrow £1,000,000 for only £700 a month in interest payments…!
- It is this increase in affordability that has helped push up house prices significantly and while rates remain low, we suspect prices will remain high in line with demand and constricted supply.
- This is the cheapest time to borrow large amounts in a number of years and it is partly why we have seen so much demand at the higher end of the market.
Increased building costs having adverse effect on developers and self-build borrowers
We are seeing building costs having an adverse effect on developers and people looking to do self builds at present. Especially as quotes on projects received 6 months to a year ago now do not necessarily reflect the real cost of a build, so we have seen some borrowers come back to us with a need for further funds to complete a project, in some cases substantially higher costs have been incurred limiting profits and creating a tricky situation for all. The construction industry has grown at its quickest pace in 24 years, and we have seen a record surge in the cost of timber, bricks and steel. However, it is not just demand, but shortages of materials due to the combined impact of Brexit and the pandemic on supplies (https://www.theguardian.com/business/2021/jun/04/building-material-costs-soar-strong-construction-brexit-pandemic/https://www.constructionnews.co.uk/supply-chain/materials-shortage-timber-and-steel-prices-continue-to-rise-in-june-07-07-2021/)
- For instance, we have a case at the moment where the £80k he was quoted for works has already gone in 2 months and he's needing to put in another £75-100k or so into the project.
- We would advise anyone looking to borrow on a self-build or development basis who does not have a recent quote go back to the drawing board and speak to their contractors as costs have increased significantly, and we have heard cases from clients where they have doubled. Moreover, the timescales to complete builds has slowed dramatically and this can have an effect from a borrowing perspective as some development and self-build finance options are released in tranches.
Holiday season and "pingdemic" contributing to delays in lender processing
We are currently finding that some lenders are on very slow timescales at present. For instant, major high-street lenders such as Nationwide and HSBC are at 7 and 8 days respectively for an initial assessment – this is the time that underwriters can even begin to look at a case from the time of application. We have also seen a number of specialist lenders struggling too, in terms of these timeframes. This is partly due to the holiday season and people taking advantage of the ability to go away again, but also due to absence on account of Covid, both people catching the virus and the so-called “pingdemic”.
- In order for a case to go through quickly, you need to be careful on who you approach and a broker with access to the -whole-of-market can help you navigate this. Lender timescales can affect our brokers recommendations for lenders, especially on cases when completion deadlines need to be met. In certain instances, it may be preferable to borrowers to take a higher rate in order for a case to be processed quickly to ensure they do not lose their dream home or the like.