It was lovely to get some snow over the weekend to break up the monotony of lockdown! Not often in the South East does your daily exercise compose of running up and down a snowy hill for sledge runs. I even let the kids have go too…
Funnily enough, the mortgage market continues to run at the speed of an Olympic Bobsleigh team and all in a positive direction. Despite the wider challenges in the economy the mortgage market remains buoyant. Week on week we are seeing lenders relax their criteria and start to compete on pricing. For the avoidance of doubt, we are still behind where we were last March, but we are heading back to a point of parity at a good pace and I would hope by early summer we may even see a ‘normal’ market.
Until then, we have managed to strike a few exclusive arrangements in key areas which I have outlined below. I have always believed being a good broker is defined by 3 key things:
1. Quality of advice to get our clients the best outcome
2. Access to products, which are often not available directly
3. Great service to make what is quite an arduous process feel easy
So focusing on that second aspect, this is where we are winning at present
High LTV Deals (Loan to Value)
Since the onset of Covid, many lenders have pulled back from offering mortgages to those with smaller deposits. In the mortgage world, anything under a 25% deposit is considered small (as house prices have never gone down by more than 25% in any one cycle). In London and the home counties that equals a lot of pennies, so accessing products in this area is key, especially when you are looking at buying a new home.
That is why we are very proud to have access to a number of lenders offering mortgages with just a 10% deposit on much better terms than if you go directly, and at much higher values. One lender we work with theoretically has no upper limit if the loan is deemed affordable and the client is a very good earner, so it would be nice to test that! At 15% deposits we have many options which are considerably cheaper than you will find with the Meerkats.
This area remains tricky even at the best of times, so that first aspect of being a broker – Quality Advice – comes in key here. Even though the mortgage market remains buoyant, there are many hidden catches to lenders criteria and now it is even getting product specific (such as Interest Only deals being priced and underwritten differently, and certain purchase products are for First Time Buyers only, etc).
BTL LTV Deals (Buy to Let Loan to Value)
Buy To Let is complex at the best of times, but like all things, that has only been exacerbated over time and post Covid.
In the ‘old days’ it was wonderfully simple.
If your mortgage was £1,000 a month and your rental income was £1,250+ pcm ✔ – you got a mortgage (as the rent needed to exceed the mortgage by 125%). These days, in that same example the rent may need to equal as much as £3,288 (as the rate you pay is ignored, a generic rate of 4.5% is applied, then the rent needs to cover 145% of that inflated figure. This is called ICR cover – Interest Cover Ratio – a fun topic for another day).
Thankfully we have access to lenders who do two things really well:
This works very well for our clients, as if your rental income doesn’t fit the above ‘standard calculation’, any surplus income you have can be factored in. Which makes getting a BTL much easier for our clients even if you don’t already own any other properties.
Lower ICR’s (Interest Cover Ratio)
Very simply we have access to lenders and deals where the above rules aren’t applied in certain circumstances. At the lower end, even if you don’t have any income to plug any gaps, some lenders will go as low as the rent covering a rate of circa 3.99% (or rental income of £1,662 based on the example above). Very close to the ‘old days’!
This is on top of very good options for Limited Company lending. This is really gaining popularity as an option mainly due to the better tax position, especially if you are a higher earner. If you are not familiar with this set up, please do talk to us as it is a lot more straight forward than you may think.
Market Rates all up again last week. That seems to have put to an end of any talk of negative interest rates for now, as GDP data was not as bad as expected, inflation rose higher than expected to 0.6% (from 0.3%) and the vaccine roll out is picking up pace.
That said, lenders are offering rates at quite a high margin over market rates, (especially where there is a 25% deposit or less) so we still feel keeping your mortgage options short term will save you the money in the long run.
In the last week:
3 Month Sterling Libor = up by 0.006% to 0.037%
2 Year SWAP = up by 0.004% to 0.097%
5 Year SWAP = up by 0.007% to 0.280%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 1.19%
2 Year Fixed Rates from 1.04%
5 Year Fixed Rates from 1.27%
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 January 2021
As he mortgage market remains buoyant we would be delighted to help on any of your mortgage needs, and can find details of our team here.