Mortgage Market Update – January 2023 Review
Founder of Rose Capital Partners
January seemed to go frighteningly quickly… and if the early economic indicators are anything to go by, the quicker 2023 is over, the better!
However, for the property and mortgage market for 2023 I think it will a tale of recovery. As mentioned last month, I truly believe that now is the best time to buy in what could prove to be a very long time indeed. That message seems to be getting out as we have been flooded with new clients looking to buy. I met with a major Estate Agency a week or so back, and they will record the most new applicants in a January since 2019 which tells it’s own tale.
It is a very mixed picture out there at present, as while the Bank of England are pushing ahead with rate rises (but we may now have peaked) mortgage Fixed Rates are still coming down. There is talk of house price falls, but the volume of new buyers may have already started to bolster prices (again, I’m talking in London and the Home Counties, as that story is very different in other parts of the country). So lets dive into these points in a bit more detail, starting with Bank of England and the Best Mortgage Rates:
Rate Expectations
On the theme of a mixed outlook, even the MPC are not in unison. The MPC (Monetary Policy Committee), is the rate setting team within the Bank of England who met every 6 weeks to set the benchmark interest rate for the UK. I went full geek on this and starting looking at the voting history of the MPC (which you can do here if you are so inclined). In December when they last met, 6 people voted to raise rates by 0.5% (which is what happened) but 2 voted to hold and 1 to go up by 0.75%! It’s not unusual for them to disagree, but a 3 way split is very rare. This month there was more consensus as only 2 voted to hold and the rest agreed on another 0.5% rise. I haven’t read the Minutes of the meeting in full yet, but there are some indications they may pause any more rate hikes until at least the summer.
However, money markets seem to think this could be the peak of this cycle. SWAP Rates (see further down the email) have fallen over 0.1% in the last 2 days alone which is a big swing in such a short space of time. Therefore, this is fuelling the falling fixed rate mortgages we are now seeing. This week we saw the first sub 4% Fixed Rate (over 10 years) since the KamiKwasi Budget in September. More falls are expected and we could see 5 year fixed rates hit 3.5% by the spring/summer. With Fixed rates falling, and Tracker margins extremely low (the lowest is 0.14% + Bank of England at the time of writing) this is why we are seeing more and more Tracker rates being recommend, especially as most are penalty free unlike their Discount counterparts. Prevailing logic is that for many people it will be best to go on a Tracker now (see below stats on this), if rates fall low enough later this year/early next, you can switch into a fixed rate, or if the Base Rate does start to come back down later this year or next as predicted, you may even start to see your payments go down. That won’t be right for everyone, especially if affordability is tight, but it certain gives us advisers a lot to talk about in our client meetings!
Top Tips for Landlords
If you have, or are thinking of buying, an Investment property, 2023 has a lot in store for you! For existing mortgage holders sadly you are in for a shock, as the rate you will go onto could be 2 – 3x higher than what you are paying now. This is forcing some landlords to sell, but with rental income on the way up, and house prices on the way down, this is a great time to secure a rental property or perhaps improve one you have, so here are some tip tips you may find useful:
Consider going on a Variable Rate mortgage?
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- Some variable rates are up to 1% cheaper than the fixed alternative at present. So this can go a long way to offset the rise in mortgage rates, especially if the above logic holds true on where interest rates are heading (which is down in the coming years if you just skipped to this part!)
- There is a risk warning here – That won’t be an option for everyone, as due to the very complex rules on how loans are offered, some people may need to take a 5-year fixed rate to make the loan work. But for modestly/lowly geared properties, and/or high yielding ones, this could work well.
Why not refurbish your property?
- With a buoyant rental market, why not take the chance to do some work to freshen up the property when your current tenancy ends, as you may well get a much better return on the next tenant?
- Another risk warning – a good tenant may well be worth their weight in gold, so bear that in mind, but if done well, you should recoup the money spent in the longer term. Some Buy To Let Lenders have specific products for this if you want to raise the funds to do it, and your existing lender may also be able to offer some extra money on what you have now, so talk to us and we can guide you through this process
If you own a house, have you considered turning into an HMO (House of Multiple Occupation)?
- HMO used to be a dirty word (or acronym in this case), but general standards from landlords have been great in recent years, and much better licencing has cleaned up the sector. Equally, in a cost-of-living squeeze, many people find renting a room in a shared house preferable to paying higher rents elsewhere. Yields are much higher and rental voids less common. So a great option for some
- Equally, there are some risks. It can be harder or more time consuming to manage. You’ll need your lenders consent to do the work so that has to be factored in and also get licenced from the Local Authority where required (rules vary so check the LA website in the area of the property). Again, in a complex area, please do talk to us as we have some great options on how you can navigate these obstacles.
Summary
Now more than ever, it is really hard to know what to do. Not even the MPC agree! Quality advice has never seen so valuable, and I am very proud of how the team has managed the last few months. Just a quick look at our Google reviews will show you how happy our clients are in a very tough period. So, if you do not currently work with us, we would love to talk to you and get you on the way to getting your mortgage paid off as soon as possible! We are acutely aware that no-one actually wants a mortgage, but you want what it achieves, so let’s help you on that journey as best as we can.
Money Market & Mortgage Rates
- 5 Year money down by 0.409% to 3.545%
- 2 Year money down by 0.352% to 3.967%
- 3 Month Sterling Libor up 0.263% to 4.125%
- UK Base Rate – 3.5% (no meeting in January, but went to 4% on 2nd Feb)
Source: chathamfinancial.com
Market Leading Mortgage Rates:
- 2 Year Fixed Rates from 4.35% (previously 4.61%)
- 5 Year Fixed Rates from 4.16% (previously 4.31%)
- 10 Year Fixed Rates from 3.99% (previously 4.40%)
- Variable Rates from 3.45% (previously 3.29%)
- Buy To Let Rates from 3.89% (previously 3.69%)
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 February 2023