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Mortgage Lenders Feeling The Strain?
It’s been very noticeable this week that lenders are really starting to seize up again as the main Stamp Duty deadline starts to loom large at the end of June.
We are seeing all sorts of records being broken on new lending. Indeed the Bank of England reported this week that net mortgage borrowing hit £11.8 billion in March, the highest level they have ever seen since records began back in April 1993. This passes the peak of £10.4 billion back in October 2006 and the highest monthly figure of new lending at £35.6 billion also in March.
There is also another factor that many banks rely on their back office functions to be carried out in India. You don’t need to be a genius to figure out that this valuable resource is not functioning as well as it would do normally, so when you put that together with the figures we see above, it is no surprise that some of the larger lenders are starting to wobble and mortgage lenders are feeling the strain.
That said, those lenders that do the majority of their work in the UK are unaffected, as all being well, Covid is very much on the retreat here and hopefully that will stay the case. So the lesson to take away is – if you need to move quickly, lender choice is more important than ever and it may pay to sacrifice a lower rate, to go with a faster bank if that saves you £15k on stamp duty.
BoE Holds Rates But Inflation ⬆
The Bank of England held interest rates at 0.1% following their rate setting meeting this week.
The main thing of note from a mortgage perspective was that inflation was on the rise and set to go higher. CPI (the Consumer Price Index, which the Bank of England tracks as its measure for inflation) went up to 0.7% in March, from 0.4% in February. Many economist now expect inflation to go above 2% before the end of the year.
The 2% mark is very relevant as the BoE targets inflation at 2%, so if we go above that level, the usual thing to do is to raise interest rates to curb spending. However, we are a long way from being in ‘normal’ times and the BoE are clearly not minded to stop spending after the last 12 months. So it is likely we won’t see any increases to the Bank Base Rate this year, unless inflation of GDP spikes unexpectedly. In fact their notes were clear that they expect inflation to stay below 2% in the medium term which is their goal so not much change on the horizon in the short term.
However, I would not rule out a reversal of the ’emergency’ cut to 0.1% before the end of the year to get us back to the 0.25% level, so they can then move rates in 0.25% increments which is typically how they work rate movements. But that would only happen off the back of a very strong end to the year for the economy.
Market rates all pretty flat in the last week, which was expected ahead of a Bank of England rate meeting, which was predicted to be equally flat.
So 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. We are yet to see the ‘big boys’ come into the 95% Market, so once we see some movement there, we also expect the cost of mortgages at this level to start to decrease, but that may take some time yet.
In the last week:
3 Month Sterling Libor = down by 0.001% at 0.082%
2 Year SWAP = up by 0.0006% at 0.315%
5 Year SWAP = down by 0.007% to 0.707%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.99%
2 Year Fixed Rates from 1.03%
5 Year Fixed Rates from 1.21%
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 May 2021
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