Private Finance's Mortgage Memo - 6th December 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.
- BTL rates remain very low despite rate rises in the residential sector
- Sharp rise in divorce related mortgage enquiries
- 90% rates back to pre-Covid levels
- The real cost of rate rises at low-LTVs for existing borrowers
BTL rates remain very low despite rate rises in the residential sector
Week in week out of late we have seen rate rises in the residential market at low loan-to values (LTVs) 60% and below, now quite incredibly in terms of interest rate the best 2-year fixed on a BTL product is better than the best residential product! Obviously, there is more to a product than just the interest rate, but this is quite the anomaly with most buy-to-lets being more expensive than their residential counterparts, but it is interesting. Buy-to-let mortgages have not moved upwards as quickly as residential which is surprising.
- We have heard from several lenders that they are wanting to increase their share of the buy-to-let market in 2022. From an innovation and criteria perspective, we have already seen HSBC launch their buy-to-let offering through intermediaries and Accord remove minimum income requirements last week and er suspect we will see further innovation in this space in the New Year and expect the best available rates in the BTL sector to become an ever more important battleground for lenders as there is a small premium to be made on them generally above residential rates.
- With the new Omicron variant making it increasingly likely that the Bank of England’s Monetary Policy Committee will delay the rate rise next week, we suspect the best available BTL rates could remain very low for some time yet.
Sharp rise in divorce related mortgage enquiries
We have seen a huge increases in divorce related mortgage enquiries in the last 2 months, with individuals looking to remortgage to buy out their partners, purchase another property or remortgage to cover case settlements for example. Despite the much-publicised increase in divorce across the country, we have been surprised by the number of enquiries we have had, and our brokers have noticed the impact.
- This rise can almost certainly be attributed to lockdown, but also the introduction of the no-fault divorce law in April 2022 could also be contributing to this significant recent increase as couples prepare for the split.
- There are a number of complexities when it comes to mortgages and divorce, especially from an affordability perspective. Clients need to consider how spousal and child maintenance could impact their borrowing, potentially having to buy somewhere while still maintaining the main residence and having 2 mortgages at once and looking at Joint Borrower Sole Proprietor (JBSP) to assist an ex-partner in getting a mortgage. There may also be outstanding debts in the background and during the mortgage application the responsibility of where this debt lies can complicate matters even for the debt-free party.
90% rates back to pre-Covid levels
We are now seeing rates return to pre-Covid levels at 90% LTVs with the best 2-year fixed now at 1.69% at this level – nearly half the circa 3% rates we saw when 90% LTV was re-introduced. Lenders looking to compete in the highly competitive first-time buyer and thus high LTV space have had scope for reductions here on account of the fact they increased dramatically during the pandemic.
- This is great news for first time buyers and those borrowers with lower deposits looking to purchase now and helps borrowers with affordability in a market where prices have increased so significantly.
- For those who took out a mortgage when rates were at their peak, borrowers may be left with a bitter taste in their mouth knowing their borrowing costs have effectively halved, however these lower rates will assist them considerably when it comes to remortgaging.
The real cost of rate rises at low-LTVs for existing borrowers
We are regularly asked about what rate rises mean in real terms, especially from a remortgage perspective. For instance, we have a client who we recently secured a 0.99% 2-year fixed rate on a 70% remortgage of a £670k property in October. If he applied now with the same lender, it would be 1.19% and that's over £1,750 difference in cost over a 2-year period.
- As with this specific example and at this current point in time with rates rising it is worth getting mortgage offers locked in at the earliest available opportunity, especially considering the majority of mainstream lenders will honour their mortgage offer for up to 6 months
- While the rates are increasing slowly and the increments are small the effects can be relatively sizeable, especially if you are looking at a longer term such as a 5-year fixed.