Private Finance's Mortgage Memo - 28th 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.
- Lenders need to adapt their bonus policies to reflect the effects of the pandemic
- Lenders adapting to LTD company BTLs
- Rates to get lower before potential BoE rate rises in the New Year
Lenders need to adapt their bonus policies to reflect the effects of the pandemic
We recently had a case for a long-term client who gets an annual bonus which amounts to a fair percentage of their salary. The client has been in the same line of work with the same company for over 10 years and has always received an annual bonus, except in 2020 where his company couldn’t pay them due to the effects of Covid. They have subsequently received their normal bonus in 2021 and this reflects the fact that things are back to normal both for the client and their employer. Lenders generally go off an average of the last 2 years annual bonus figures, and an average of 0 and current figure for 2021 would still have worked for this client given the size of the bonus, however where there is no bonus paid in one year of a 2-year period most lenders will not take it into account at all, bar the more specialist lenders and thus this means higher rates.
- It was surprising how few mainstream lenders would take a view on this situation. This is not an isolated case. As a large number of our clients have ‘complex’ income situations involving bonuses and commission and the like, a number are affected by this lending criteria. Given the large numbers of people affected by the pandemic, especially when it comes to bonuses, in what an extraordinary year we would like to see more lenders, especially mainstream lenders, take a more pragmatic approach on this.
Lenders adapting to LTD company BTLs
When the tax changes on buy-to-let came in and people started switching to limited company structures for BTLs it was rare, if not unheard of, to find a limited company BTL mortgage in the 2% range and it was always expected that a limited company BTL would be in the mid 3% range. However, there are now several options at sub 3%, with even some of the more specialist limited company lenders having rates in the low 3% range. Interest rates have come down across the board in both the residential and investment mortgage market, however as it has become more common for landlords to purchase properties in a limited company structure, lenders have become more flexible as they compete for this business.
- A number of these products are ‘limited edition’, but it seems these rates may be here to stay, especially given the growth in demand for these types of products, not being competitive in this space would lead to a potential loss of business for lenders. It does however remain the preserve of specialist lenders and thus specialist rates will always apply, albeit at a more competitive level going forward.
- 2021 is the full first year where you cannot deduct mortgage expenses from rental income and although announced in 2015, it may have driven landlords to change their structures especially with the SDLT holiday in place in 202/21 and thus this type of product may see continued increasing demand.
Rates to get lower before potential BoE rate rises in the New Year
Following a flurry of announcements regarding relaxing criteria and lower rates last week they have remained static in the last few days, however we suspect we will see lower rates and further relaxation of criteria before the base rate rises in early 2022. We have had conversations with lenders recently, and one major mainstream lender recently informed us that they have ‘tens of billions they want to deploy asap’ and that even with the very low rates on offer the margins make sense, given the alternative is far less…
- To lend more, lenders either need to make a choice to increase affordability, reduce rates and ease criteria, but given the competition in the market amongst lenders to deploy very cheap capital it appears they are opting for a combination of all three. We suspect we will see increased competition in the best 2, 3 and 5-year fixed categories in the coming weeks and further increases in affordability and relaxation of criteria especially in relation to higher LTV borrowers and those with higher incomes and/or more complex income structures.