Private Finance's Mortgage Memo - 25th May 2022
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.
- Lenders continue to ease BTL criteria to be more accessible
- Slim rate difference between high and low LTVs
- Borrowers turn to interest-only mortgages amid high inflation and cash flow issues
Lenders continue to ease BTL criteria to be more accessible
Lenders continue to shake up their criteria in the buy to let market to allow for a wider scope of borrowers and higher loan amounts. Last week Nottingham ‘tore up’ their BTL lending criteria, repositioning themselves in the BTL market offering a great new lending proposition including a no minimum income requirements, no need for an investor to be an owner occupier, as well as much more flexible stress rates on rentals.
- Recently, Nottingham have been offering competitive rates and it appears they are targeting more the specialist BTLs include Ltd company. Perhaps lenders are looking to seize opportunities in the current booming BTL market by offering competitive rates and easing criteria, locking in investors and increase their market share.
- These criteria changes will allow for a wider range of borrowers to be eligible where they didn’t meet the criteria before. However, opening their criteria range and attracting those in a weaker financial position may be deemed risky at a time where landlords face increased risk of void periods as the cost-of-living crisis leads to affordability issues for tenants and likewise, landlords face future rate and tax rises which may eat into the potential profits from investing in property.
Slim rate difference between high and low LTVs
Rising mortgage rates have been under the spotlight after four consecutive base rate rises since December 2021, with those of a higher LTV typically having to pay a premium, however lately it appears the difference in rates between LTVs of 60% to 90% is narrowing and are rather slim.
- The best available 5-year fixed residential rate at 60% LTV is 2.45% and at 90% and 95% is 2.69%, a difference in best buys is only 0.24%.
- This is good news for those needing to borrow at a high LTV considering they will not have to pay as large of a premium as they once would have had to, especially considering rising property prices and the tougher barriers to raise significant deposits.
- However, the housing market remains highly competitive with properties going to the most favourable offer and estate agents analysing the buyer’s ability to get a mortgage, it is likely more properties are being purchased with a lower LTV anyway.
Borrowers turn to interest-only mortgages amid high inflation and cash flow issues
We have noticed a recent spike in interest-only mortgage enquiries as borrowers are attracted to the aspect of minimising their mortgage payments, making the mortgage more affordable and then can use their disposable income elsewhere in times of cash flow issues and expenditure cutbacks. We have also seen more clients wanting to stretch their mortgage term to minimise payments, with some comparing deals a few months ago to deals now and seeing monthly payments hundreds higher than before.
- With inflation hitting 7.8% in April and household incomes squeezed further, borrowers may be looking at ways to enhance their savings and expenditures by considering stretching their mortgage terms and opting for interest-only mortgages.
- This could be beneficial for those with high incomes who have a suitable repayment vehicle and receive bonuses, where they can make extra payments against the loan principle and thus reduce the amount of the monthly payment.
- The eligibility criteria is strict for interest only mortgages and only a select few will be eligible. If an individual is using the method amid cash flow issues, lenders may be cautious over their affordability assessments.
- This is a risky option considering the possibility of house prices falling if the individual plans to sell the house in the short term to pay off the mortgage or if there is a fall in investments, but a risk many are happy to take on to have better cash flow.