Private Finance's Mortgage Memo - 9th November 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.
- Blocked-chain: mortgage lenders slow to adapt to growth of crypto-currency
- Rates still increasing, despite BoE holding off base rate rise
- Increased enquiries for green mortgage products
Blocked-chain: mortgage lenders slow to adapt to growth of crypto-currency
As the price of a number of cryptocurrencies have either reached all-time highs and have seen stratospheric growth in a short period of time, we have seen an increasing number of enquiries from potential borrowers looking to utilise their gains to purchase property. While cryptocurrency is seen as an asset class by a variety of financial institutions, the vast majority of lenders take a different view and even if the funds can be traced and are accounted for, their presence tends to lead to an automatic decline if needed as part of a deposit. With this set to be increasingly common, it raises the question as to when crypto will be seen as an asset by mainstream mortgage lenders?
- While we understand the rationale, and the fear lenders have with the link between cryptocurrency and money laundering, times have changed considerably, and cryptocurrency is very much part of the mainstream especially with younger borrowers. It is featuring increasingly regularly in new purchase enquiries of late, not to fund the whole deposit for the most part, but a part of it, in the same way as borrowers may sell stocks and investments.
- There are some lenders who will accept cryptocurrency as a deposit, providing it can be accounted for and the funds are in Sterling and visible in a UK bank account, however this tends to be more specialist lenders and not those in the mainstream, which tends to mean higher rates.
Rates still increasing, despite BoE holding off base rate rise
A number of commentators were surprised by the Bank of England’s decision not to increase interest rates last week and given lenders recent rate rises and the upward movement in the Swap Rates markets we were somewhat surprised too. The majority of mainstream lenders had already reacted to this potential rise and had increased rates, and it appears that lenders are not going to reverse their decision anytime soon. Rather, there have been rate rises since this decision by some lenders also – not huge ones but rate rises all the same.
- In the highly competitive post-pandemic lending environment, lenders had been reducing rates and squeezing their margins to attract the best customers, so a rate rise was to be expected at some point. It is very much not a question of if the base interest rate rises, but when, and consequently we expect we will see rates continue to rise, albeit slowly, for some time.
- While lenders have been increasing rates, the interest rate environment remains low in a broader sense and thus borrowing is still cheap. It will be some time until the best available rates are at 2% and above and this is highly unlikely in the short term (<1 year).
- The best available 2-year fixed rate is now being offered by a small building society, at 0.99%, who may be using the fact that mainstream lenders have increased rates as an opportunity to attract new customers in the short term.
- Moreover, the best available rates are for purchases in the 2 and 3-year fixed categories and not for remortgages, indicative of the dramatic slowdown in the purchase market of late, and this may impact lenders decisions also.
Increased enquiries for green mortgage products
Whether it be due to COP26, the Insulate Britain protests or a general awareness and increased media reporting, we have seen an increased number of enquiries and general interest in Green Mortgages in the last month, especially from those considering self-build projects, who are looking to benefit from the fact they are planning on maximising their new homes environmental credentials.
- Given that domestic heating accounts for nearly 14% of UK emissions it makes sense that there is a focus here to reward those purchasing energy efficient homes. Over time these benefits to borrowers will likely increase, however it is important that the market does not penalise those who want to purchase energy inefficient homes, but rather enables them bring houses up to the necessary standards (where possible) and as such we would like to see the Government work with lenders to enable borrowers to upgrade inefficient properties upon purchase, be it, new heating systems, or improved insulation or glazing and be rewarded for taking on this cost with cheaper borrowing.