As we start to ebb out of lockdown with schools re-opening, making bookings for pub gardens from the 12th April (and willing to sit outside no matter the weather) and with the very brave of us booking holidays for later in the year 🤞, things are starting to feel a little more ‘normal’, plus a return to the 40 year fixed rate mortgage debate.
It certainly is fuelling the mortgage/property market as we have had nearly double the level of enquiries at this stage of the month than we had in the previous one. We are hearing stories of sealed bids on properties returning and a general lack of new housing stock which is only going to push prices one way. Just to be clear, we aren’t seeing a crazy level of activity, certainly an uptick, but it is interesting to see those things start to happen again.
Therefore, as ever, a busy week in the mortgage world and these are some of the highlight as I saw them:
40 Year Fixed Rate Mortgage
We have a new lender enter the market – Perenna – who are now offering a ‘lifetime’ fixed rate, so that could be up to 40 years. What is different about these products are that there are no early repayment charges, so you have the certainty of a long term fixed rate without the concerns of having to pay penalties if you want to pay off the mortgage or move. All sounds great so far until you get to the rates, which start at 2.99%. With comparable options starting at 1.05% (and penalty free options from 1.19%) they are too far off the pace for us to be seriously looking at recommending them at present, but this is an interesting move and if the pricing gets more competitive, I can see a place for this.
This is far more common in Europe and the US, where you have a long term fixed rate with more flexibility, so I hope other lenders respond which will drive down pricing. Innovation is always very welcome in my book but the numbers have to stack up before we would recommend such an option.
We have been here before though. In 2004 Gordon Brown commissioned a report into bringing in more long term fixed rates to help end the ‘boom and bust’ culture as he saw it. Sadly take up was poor, options limited, and then we ran into the biggest ‘bust’ in a generation with the credit crunch in 2008… So I am not getting overly excited at this stage, but times change, and with so much unrest since 2008 perhaps conditions are better for people to want greater stability with their finances. Who knows? But one to keep a close eye on.
£17.6 Billion Debt Paydown
UK Households repaid a record £17.6B of mortgage debt since lockdown #1.
That really does show the staggering gulf of people’s experience since the onset of Covid, as 1 in 6 borrowers have also requested a payment holiday in that time.
We’ve also seen record borrowing since various lockdowns have eased which has seen total mortgage borrowing reach its highest level ever at £1.5T (yes, Trillion…)
Lenders had not expected such huge paybacks, so no doubt they will be keen to get that money lent back out as market rates are still near all time lows (see below for more on that) but lending margins are now higher than they would have been on the loans being repaid, so extra impetus for lenders to keep the wheels turning by granting more new mortgages.
Market Rates just slightly pegged back for the first time in a while. No sign the Bank of England will raise rates but with upward pressure on pricing for now for the first time in a long time, could be a good time to fix in for a longer product if you have a large deposit.
The big news in the budget was that of the ‘95% Mortgage Guarantee Scheme‘ which is designed to bring down the cost of mortgages for those with small deposits. This scheme kicks in from April so it may be some weeks before we see how that will shape the market.
In the last week:
3 Month Sterling Libor = up by 0.003% at 0.078%
2 Year SWAP = down by 0.006% at 0.246%
5 Year SWAP = up by 0.025% to 0.592%
Bank of England Base Rate = Held at 0.10%
Best Mortgage Rates
2 Year Variable from 1.19%
2 Year Fixed Rates from 1.05%
5 Year Fixed Rates from 1.19%
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 March 2021