It seems that every time I say ‘mortgage rates can’t get much lower’, mortgage rates continue to fall.
It was another bumper weekend of sport to keep us all entertained. Probably a good thing as half the UK seems to be isolating at present during this ‘Pingdemic’ stage of the pandemic…
A truly pulsating Lions win was a clear highlight for me. But as the Olympics have now started, I have acquainted myself with the technicalities of Taekwondo and the scoring of Surfing. The Olympics certainly delivers with its array of sports.
Not quite the same level of razzmatazz in the mortgage world, but certainly a week of big news, the main highlights are below:
Mortgage Rates Continue To Fall
Nationwide made a lot of press this week as they have introduced the first-ever 5-year fixed rate under 1% at 0.99%! You will require a 40% deposit, the maximum loan is £1m, the lender fee is £1,499 and they also offer a free survey, so a great value deal all round which will suit large mortgages. They also top the tables on a 2-year deal, breaking the previously lowest mark with a 0.91% deal on the same terms as mentioned above.
I think it is also important to clarify what I mean by mortgage rates getting to the lowest point of this cycle:
Mortgages aren’t like the Stock Market or any other form of investment for that matter. It doesn’t really matter what happens day to day, month to month, or even year to year for some. Typically most people arrange their next mortgage over a 2 or 5 year period. So what is really relevant is looking at long-term trends as the key question is “will mortgage rates be lower or higher in the next 2-5 years”. That is why I look closely at the relevant long-term money markets (see below, which is on this email every week). They all very clearly indicate that the market expectation is that mortgage rates will be higher in the next 2 years +.
A very good recent article on Bloomberg on this very point states that HSBC, Credit Suisse, Bank of America, and others now expect the Bank of England to raise interest rates at least once next year. This is off the back of rising inflation and GDP which I have talked about a lot previously.
So when I say – rates are the lowest they will get in this current cycle – that is in the context of anyone needing to arrange their mortgage before the end of the year, as by next year and beyond, the expectation is very much that interest rates will be rising in that 2-5 year window, which means these are the lowest rates you are likely to see unless anything major changes.
Another key factor is how banks fund their mortgages. They often buy ‘tranches’ of money, which typically last 2-3 months. Lenders don’t want to be exposed to daily changes in mortgage rates as the admin involved, and lack of accurate pricing would make life very hard for a broker to pick the best-priced lender for our clients. So this tranching provides stability, but also means that mortgage rates are often a few months behind market rates, and also why I look at it so closely to try and pick out times like now where we can advise our clients as accurately as possible.
If I could accurately predict the ‘bottom’ of the market, I would be a much wealthier man than I am, but what is clear is that if we aren’t quite at that point yet, we are likely to be very soon.
House Sales Break Records In June
Figures from HMRC confirmed what we all knew in that June, sales hit their highest monthly UK total since comparable figures were first collected in April 2005. The figure was 216.1% higher than the same month a year earlier, and 108.5% above that of May this year. A total of 213,120 sales were completed.
Rather than this being a bubble, as demand is still outstripping supply, most analysts agree that prices will continue to rise for at least the remainder of the year.
Cladding Rules Clarified
In some rare good news in the ongoing cladding saga, the Govt has clarified rules that in buildings under 18m, there is no need to provide the enhanced safety checks that had been initially requested.
The rules on this had been quite murky for a while, which lead some lenders to insist on an ‘EWS1’ form, while others did not. As there is no regulatory need to do these checks on buildings under 18m, many owners found themselves in unsellable, or uninsurable property, which is clearly a nightmare situation.
Barclays, HSBC, and Lloyds welcomed the change and said it should pave the way for updated industry guidance. It follows concerns over large bills to remove cladding facing many flat owners since the Grenfell Tower fire.
There is still quite some way to go before this issue is resolved, but these clearer guidelines will be a huge relief to many people who are in this situation.
Marker Rates were all pretty much up again last week. So as touched on above, we could well be at the lowest point in this current rate cycle.
Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer term fixed rate if you have a 25% + deposit, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling Libor = down 0.003% at 0.073%
2 Year SWAP = up by 0.014% at 0.445%
5 Year SWAP = up by 0.010% to 0.689%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.99%
2 Year Fixed Rates from 0.91%
5 Year Fixed Rates from 0.99%
BTL Rates from 1.19%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process
Source: Twenty7Tec July 2021
If you would like more information on how mortgage rates continue to fall or any other advice with your mortgage please contact one of the team.