Mortgage Market Update – June 2023 Review

Last week took us to the end of the first half, of what has already been, a rollercoaster of a year…

When Mortgages are top of the news cycle that never signals good news. It is undeniable that the speed of rate changes has been hard to deal with. Equally, with the changing sentiment (yet again this year) that interest rates haven’t topped out yet makes the mortgage market quite a maze to navigate at present. 

While I greatly enjoy getting emails from lenders at 5pm on a daily basis saying their rates are being pulled at midnight (or earlier) that day, I would prefer a bit more notice. But I am grateful that it has stopped me drinking of an evening, as working an evening shift while after a few beverages is never ideal… Who’d have thought that it would be inflation that got me back into shape!

On a serious note, it is very hard to know which way to turn at present if you are looking to arrange your mortgage, so this month, I will look at that point in specific detail and really get geek on…

Is Now The Time To Be Brave On Your Product Choice?

As alluded to above, with both lender rate changes coming thick and fast and money markets thinking that the Bank of England is going to push rates higher still, it is hard to know exactly which product to opt for.

Earlier in June it was easy – rates were on the up and 5 year fixed rates looked great value, but then we reached a tipping point where these deals had been repriced so much alternatives started to look better. Brave clients are looking at Tracker rates more frequently now, as if rates do peak quickly and come down quickly, you can win. Equally, some are considering 2 year fixed rates for much of the same reason, so you can refinance when rates are on the way back down (currently, 2 year fixed rates are our most popular recommendation). However, as the Bank of England moved rates up by 0.5% on the 22nd June to 5%, which pushed lender rates up yet more as the market was expecting a 0.25% (albeit 0.5% wasn’t a shock like the media make out) it has just led to more adjustments on rates of perhaps more persistently higher interest rates for some time. So here is the geeky bit: 

As you’ll see in the info below on the best current mortgage rates, you can get a variable option as low at 4.24%. This is specifically a Discount Mortgage, which I wrote about in detail in this article here which was picked up What Mortgage nearly a year ago now. In short, this is linked to the lenders own Variable rate and NOT the Bank of England. So whenever the Bank of England raise rates, these products will top out the best buy tables as lender often move their own variable rate later, to a lesser degree, or sometimes not at all. And here in lies the opportunity. If a lender does not move their own variable rate up by as much as the Bank of England, you win. However, they could move them up by more, then you lose. However it is crucial to note that lenders have not moved their own variable rates up as much as the Bank of England as they were artificially high coming out of the ultra-low interest rate environment I am sure we are all pining for right now…

Data on this is hard to come by, but one lender we use a lot for this type of lending is the Furness Building Society (in fact it is mostly the small Building Societies that price this way, not Banks, as they lend out their own deposits more so than a Bank does. A small but important technical detail as to why this can work). In August 2022, their SVR (Standard Variable Rate) was at 6.09% but as of the end of June it was at 7.99% a 1.9% rate. It is interesting therefore to note that in the same timeframe the Bank of England went from 1.75% to 5%, a 3.25% rise. Meaning anyone who took out a Discounted Mortgage over that period will currently be paying a rate 1.35% cheaper than the like for like Tracker mortgage at the time, as they are specifically linked to the Bank of England. This is typical of a majority of UK lenders as they have not moved their SVRs up as much as the Base Rate.

I appreciate this tactic does not come without its risks, and the names of the Building Societies we recommend sound like they should be locations in one of the Lord of the Rings books, however, I do feel this approach does represent good value if you are willing to take some risk.

I would also point out that the small Building Societies are on the low end of the risk curve themselves. Unless you have permanent rights to reside in the UK, a clean credit history, looking to borrow 4.5 x or less than your income or have a healthy deposit, this may not even be an option. But where it is, I feel it is worth considering. As you’ll see in the money market data below, looks like we aren’t done with rate rises just yet, so it may seem counterintuitive to suggest a variable rate product, but if this does blunt the top of the rate curve for you, it is worth closer inspection.

Money Market & Mortgage Rates

• 5 Year money up by 0.600% to 5.001%
• 2 Year money up by 0.880% to 5.835%
• 3 Month Sterling Libor up 0.495% to 5.390%
• UK Base Rate – up by 0.50% to 5.00%

Source: chathamfinancial.com 

Market Leading Mortgage Rates:

• 2 Year Fixed Rates from 5.59% (previously 4.39%)
• 5 Year Fixed Rates from 4.99% (previously 4.05%)
• 10 Year Fixed Rates from 4.94% (previously 4.26%)
• Variable Rates from 4.24% (previously 3.99%)
• Buy To Let Rates from 4.89% (previously 3.99%)

Source: Twenty7Tec – July 2023 – 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

Summary

Now more than ever, quality financial advice is needed. Not just to navigate the product options discussed above, but also the very tricky ‘affordability’ rules that lenders are imposing. This is how lenders determine how much they will lend you, which sways hugely on your income, outgoings, debts, commitments and spending patterns. Not all lenders look at things the same way, so that is why it is imperative you talk to an adviser who can find the best way forward for you.

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.