Private Finance's Mortgage Memo - 22nd June 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.
- Increased levels of bridging enquiries to make financial deals work
- Santander pull lower LTV rates, but it isn’t all bad news
- BoE confirms withdrawal of affordability test
Increased levels of bridging enquiries to make financial deals work
Over recent months, we have seen higher levels of bridging enquiries, a trend we predict we will continue to see as borrowers and investors desire to make financial deals work in a market with increasing financial instability. Since the first base rate rise at the end of 2021, residential and BTL rates in general have been increasing continuously, whereas bridging finance rates have remained fairly static despite comments from lenders that these rates may increase along with the institutional level costs of funds moving forward
- The fact that these rates haven’t increased as significantly as residential and BTL rates makes bridging finance more appealing. While a specialist BTL rate may have increased from 3% to 4.5%, bridging loans have stayed at often 7-8%. This difference in rate isn’t too much of a premium to pay when considering the benefits of short-term finance.
- Bridging finance can be a great way to fund things if there is a ‘chain break’. With the housing market having been highly competitive this year and housing stock limited, prospective homeowners may have been looking for a long time now and finally found a property they like or may have had a property transaction falling through so are prepared to pay for bridging or alternate financing in order to complete a deal.
- Landlords have been hit with many tax and legislation changes over recent years, and now with BTL rates increasing it makes new buy to let purchases less appealing again. With this in mind we have seen some landlords turn towards more commercial investments for a higher profit and use bridging finance to do things like refurbishments to property, buy properties below market value at auction, etc. The recent HMRC transaction figures show a 9.7% rise in non-residential transactions in May 2022 compared to May 2021.
- A slowdown in the housing market this year may give rise to alternative financing demands such as bridging finance and equity release.
Santander pull lower LTV rates, but it isn’t all bad news
Santander have announced they will be temporarily withdrawing their 60% loan to value (LTV) residential purchase and remortgage products as well as their 75% LTV £0 residential purchase and remortgage products. Luckily, Santander's other 75%+ rates are still competitive even if needing to borrow at a lower LTV, so it isn't all bad news
- Lately, more lenders have been increasing their case review times from 2-3 days to even up to 15 working days. Santander are sourcing relatively well at the moment so we assume they may be trying to avoid becoming inundated with applications at lower LTVs to keep the service competitive and to make the slightly higher margins at higher LTVs dictate. An alternative course of action for this lender to reduce the number of applications they receive is to increase their rates at higher LTVs, however this would make them less competitive. By withdrawing these products at lower LTV, these borrowers still have the option to use the higher LTV rates if they chose to do so.
BoE confirms withdrawal of affordability test
The Bank of England has confirmed they will be withdrawing the mortgage market affordability test from 1st August 2022. The 3% additional affordability stress test was a Bank of England initiative set up in 2014 which assessed a borrower’s ability to repay a mortgage.
- It is most likely that this change won’t have a significant impact on a prospective borrower’s ability to get a mortgage as the loan to income (LTI) restrictions are still in place and most clients are restricted by LTI rather than affordability.
- Lenders have their own risk committees and rules in their lending structures. Each individual lender will have discretion over the changes they wish to make in terms of their lending practices, however this change does not mean all lenders will necessarily adopt the reduction.
- The withdrawal may help borrowers who are constricted by affordability, in particular those on lower incomes and thus more likely to be affected by the cost-of-living crisis and interest rate rises. While it may lead to some borrowers being able to afford loans more in line with amounts six months ago, affordability calculators have also tightened since then too to reflect the cost-of-living crisis, so overall there may be little difference.