Private Finance's Mortgage Memo - 16th 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.
- Low LTV mortgage rate increases and High LTV rate decreases
- Do Barclays know something we don’t?
- Microflats present large mortgage difficulties
Low LTV mortgage rate increases, and High LTV rates decrease
We have continued to see rate increases in the low LTV mortgage sector; however, these increases are not overly significant, some 0.05% and 0.1% here and there, and more often than not this is just - lenders bringing things in line with their peers. The more interesting part of the market we feel at the moment to watch is the high LTV space and generally we are seeing rates in the space now similar to, if not slightly more, than pre-Covid levels where the base rate was 0.75%. This means that lenders still have room for movement in this space and the lenders that offered 90% and 95% rates early will be reaping the benefits with their 3%+ margins they made on many of those loans.
- With buyers borrowing at higher rates and purchasing property that had seen significant price increases and thus is less likely to see significant capital gain in the short and medium term, there may be some buyer regret coming into play at the minute. Especially as some people may have made moves that are not conducive with the return to normal life and potentially having to go back to commuting and away from their old social lives. This possibly links to a recent study by Aviva, that found in a recent survey of homebuyers during the pandemic, half of those questioned regretted the amount that they paid.
Do Barclays know something we don’t?
Barclays last week altered their rental calculator stress rates for buy-to-let mortgages - these were increased (meaning their calculator is now tougher) to reflect "current market conditions". Across the rest of the market, we are seeing other lenders put into place more flexible criteria and by all accounts the rental market is booming too, with flats in London for instance being snapped up the same day the listing went live, so it begs the question, do Barclays know something we don't?
- Rental demand seems very high at the moment, perhaps this reflects the increase in home values we've seen over the last year and Barclays are concerned about this, but strange for them to only implement the change on the buy-to-let side if this is the case, and it raises the question as to whether we should we expect some other changes from them?
- We suspect, given the way Barclays calculates BTL affordability, this has a lot to do with potential rate rises and the fact that an individual’s residential mortgage costs may rise soon along with other costs of personal borrowing and thus they are taking a more conservative approach.
- It may also be the case that Barclays simply wants to curtail their lending in this sector and has thus tightened the criteria to limit application numbers.
Microflats present large mortgage difficulties
The Guardian released an interesting article with regards to the increasing demand for very small studio apartments, often these are marketed as pied-a-terre style properties, however some see them as the only way they can get on the property ladder in the short term and be near city centres or transport links and also investors interested in them as they are cheap. These properties site below the National Minimum Standard size being set at 37 sqm and we see these types of property both in new builds and old converted buildings alike, but it is not this that present the issue with borrowing…
- What many do not realise however is that if a property is under 30 sqm it severely limits the lenders that are willing to consider the property, as some lenders do not place much value in a property smaller than this. And we have recently been approached for some flats as small as 17sqm…
- Those that purchase properties of this size need to consider the fact that because people cannot always get finance from the high street for the most part, they are limited to cash buyers or specialist lenders and thus resale is going to be somewhat more difficult. This, however, is often already taken into account with the sale price.