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Private Finance's Mortgage Memo - 18th October 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.

  • Don’t miss out on historic low rates, the rises have begun…
  • Is SDLT limiting housing supply?
  • High-value enquiry levels remain strong

Don’t miss out on historic low rates, the rises have begun…

The base rate being at 0.1% and incredibly cheap debt for borrowers could not last forever and has to some degree fueled the pandemic property boom along with homeowners changing tastes and requirements and the SDLT holiday. In response to the murmurs from the Bank of England of an upcoming rate rise to combat inflation, potentially now before Christmas, we have seen lenders respond and have already begun to increase rates. For example, Halifax have just increased rates on all their 5-year products at all LTV levels by 0.25%, NatWest also recently increased their rates on both purchase and remortgages in 2 and 5-fixed by 0.05% and the best available rates are creeping up too.

  • Now is the time for borrowers who need to remortgage to consider their options, with rates at the low levels they are it may even worth those coming to the end of a fixed term, especially in the 5-year fixed market as even with early repayment charges (ERCs) there may be significant savings.
  • Once rates rise, we suspect we will see property prices affected as ultimately it means there are fewer potential buyers for each given property as affordability is constrained.
  • The BTL mortgage market was the last to reduce rates significantly (with the best 2-year fixed now at 0.99%) as these lenders are often more conservative and we suspect we will see larger percentage rate rise in this space due to this more conservative lending nature in the coming weeks and months.

Is SDLT limiting housing supply?

It has been widely reported in the press, from estate agents and anecdotally from our clients that supply is low, and we have had some borrowers still looking for a property for many months now. We think that this is partly due to the disincentive effect of SDLT on purchases for second steppers and those looking to downsize and this in turn leads to stock not being freed up. As house prices have increased to record levels since the pandemic, this means that many second steppers will struggle to get the cash together for their next move up the ladder, despite potentially being able to sell at a profit and borrow enough for their next house and thus in turn they are taking up housing stock, perfect for first time buyers. At the other end of the market in terms of demographics, older people with houses that are now bigger than they require are put off moving as if they were buying a smaller house at say £450k, that would incur £12,500 worth of SDLT, 1.5% of fees to sell so £6,750 and legal fees on top of that – so more than £20k and while this generation may be asset rich, they may be cash poor.

  • In short, SDLT can make the market somewhat restrictive for a number of borrowers and this limits housing stock. We recently saw how much the market moved during the SDLT holiday and ultimately it created a degree of fluidity in transactions, while this was only temporary, changes that help people move up the ladder or incentivise downsizing should be considered, and this could have a very positive impact on housing stock availability.

High-value enquiry levels remain strong

While there has been a degree of stabilisation in the market following the end of the SDLT holiday, limited supply, and the end of lockdown restrictions, we have noticed that higher value enquiries, those over £1m of borrowing have remained strong and we have seen an increase of late. The reason for this is partly due to the large increase in property prices and borrowers looking to maximise their affordability while rates are low and this links to the refinancing of larger debts where remortgaging currently could lead to significant savings both on residential and investment terms.  

  • However, it appears that the base rate will go up shortly due to the inflationary pressures on the economy and there is an element of buyer beware here… the interest currently on a 2-year fixed at £1m worth of borrowing is an astonishingly low £700 a month, but if the base rate rises consistently over the next 12 months this could more than double quite easily if you were to remortgage at 1.7% as opposed to 0.84%. 

Private Finance's Mortgage Memo - 18th October 2021

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© Private Finance Limited, 2021. Private Finance provides independent mortgage advice and arranges individual mortgage solutions for clients. Private Finance is a trading style of Private Finance Ltd, 29 Lincolns Inn Fields, London, WC2A 3EG, registered in England no. 3855776 and its Appointed Representatives. Private Finance Limited is authorised and regulated by the Financial Conduct Authority (FCA registration number 310566).

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