Private Finance's Mortgage Memo - 21st 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.
This is our last Mortgage Memo of 2021, until the week commencing the 4th of January. All of us at Private Finance would like to wish you a very Merry Christmas and Happy New Year.
- Increase in demand for long-term fixed rate products
- December unseasonably busy
- Further rate cuts at high LTVs despite the base rate rise
Increase in demand for long-term fixed rate products
With the base rate rise last week we have seen an uptick in enquiries for very long-term fixed rate products (10 years plus). We believe this is indicative of a growing trend that we will see continue in 2022, especially as many believe the base rate rises will be consistent moving forward to combat inflationary pressures on the economy.
- The best 10-year fixed currently available is a highly competitive 1.93%. While this is significantly above the best 2-year fixed rate product at 1.11%, should the base rate rise over the next 2 years by 1% for instance this will be a very good deal and could save borrowers thousands in the long term.
- While these products give borrowers certainty, they are not for everyone, especially not those who would want to consider moving in the short term. However, for a family who have already found their ‘forever’ home these could be perfect. A main criticism of these products are the early redemption charges, so it is not a decision to be taken without great thought.
December unseasonably busy
We have seen an unseasonably busy December so far this year with new enquiries continuing to come in thick and fast, as well as an increase in enquiries from our existing clients, and currently we are operating 100% above our predicted targets. This is partly being driven by the base rate rise last week, as borrowers look to lock in the best available rates now for upcoming remortgages and purchases in early 2022.
- The changing patterns of demand in the mortgage market is something we have noticed since the beginning of the pandemic. The market and society at large have more to respond to, from Covid restrictions, both domestic and on travel changing to policy changes such as the SDLT holiday. Therefore, the seasonality that underpinned the market has decreased significantly. Whether this continues going forward very much depends on how quickly we revert to the status quo.
Further rate cuts at high LTVs despite the base rate rise
We have seen further rate cuts at high LTVs (80% and above) since the base rate rise, with Accord and Platform cutting rates in this bracket by up to 0.3%. Logic would suggest a base rate rise would lead to increased rates across the board, but the situation is more nuanced than it appears at face value. During the initial stages of the pandemic lenders were wary of how the market would respond, and with the potential for house prices to fall, either increased rates dramatically in higher LTVs or removed the product offering altogether. As we know, the housing market saw unprecedented levels of demand and price rises, but lenders were slow to cut these top rates in favour of cutting the rates for less risky lending propositions at lower LTVs and this has only been a relatively shift in approach.
- As prices have increased there is increased demand to borrow at higher LTVs and lenders still have a significant margin in this arena within which they can reduce rates and compete for potential borrowers.
- AT 90% LTV we are back to pre-pandemic levels and 95% is catching up too in this regard. We suspect we will see further rates cuts as lender compete on first-time buyer business in 2022.
- Rate cuts at this level of borrowing are indicative of lenders confidence in the housing market moving forward.