With a vaccine for Covid seemingly much nearer, is this the beginning of the end to this pandemic and if so, what is the effect on mortgages?
Many think we are nearing the end of the pandemic and that has led to a much brighter outlook for 2021 than had been the case for a good while now. I’m certainly not an epidemiologist, so could not even speculate as to the effectiveness or timeframe it will take to roll out a vaccine and that isn’t even the point. The point is that it could be ‘months’ before things get back to ‘normal’. How many months, who knows, but it does look like at some point in 2021 we can look forward to packed commuter trains, long queues at bars and endless children’s parties… hurrah!
Stock Market Rally
With this optimism the FTSE finished the week around 5% up, a monster gain! A lot of hospitality and travel based firms were big winners, including airlines. As people will no doubt be now rushing to book up a much needed trip abroad. Some large scale redundancies were also scaled back which added to the positivity of the week. Activity is still some way down on pre-Covid levels, but it does look like we will avoid slipping back into recession next year as some had feared.
Softer stance on Brexit?
With the exit of Dominic Cummings could we also see the UK soften its stance on Brexit and start to make some headway with negotiations? Sterling was up against the Euro and Dollar on these hopes as talks really are at crunch point. We just need to make sure that Carrie Symonds signs off the final trade deal with the EU and we are good to go!
Cliff edge avoided?
The serious point is that a large cliff edge event seems to have been avoided in the property sector. As of the 1st April both the Stamp Duty holiday and current Furlough extension were coming to an end. There was a lot of negativity within our industry around this inadvertent combo and its effect on mortgages. We had seen a few down-valuations on new home purchases of late as the concern was – if we slip back into recession and more redundancies are needed, will house prices hold up in 2021?
That is still a relative unknown, but with a vaccine in sight and hopes of a positive outcome with the EU, much of those concerns have been allayed, for now. The FTSE is still trading under the level it was post-referendum result in 2016, so if all goes to plan, we could now see a stable, if unexciting 2021, but i think after the last 12 months that would be welcome relief to everyone!
What effect will this have on mortgage rates?
That is always the golden question and at the risk of sounding like a broken record in recent weeks, not much, if any! Capacity still remains the issue in our world of mortgages, in that mortgage lenders simply do not have enough of it. While a vaccine is welcome news, mortgage lenders in the UK have global resources, such as processing centres in India etc, so it could take a very long time indeed before the mortgage world gets back to ‘normal’.
As the knock on impacts from an underwriting perspective will also last years, especially if you are self-employed, so while money market rates are a large factor, the main game in the mortgages right now is – don’t be cheapest! As they simply can’t process all the applications that creates, so upward pricing and choppy processing is the norm for us for a very long time to come…
With SWAP rates moving very markedly up last week – 5 year money is up 66% in one week from 0.2 to 0.3%, a huge increase by any standard – we could well now have seen money markets bottom out for this cycle, and possibly ever?! That said, lending margins remain very high so we don’t see enough to change our view that staying on short term products offer the best value for now.
In the last week:
3 Month Sterling Libor = down by 0.003% to 0.042%
2 Year SWAP = up by 0.041% to 0.064%
5 Year SWAP = up by 0.100% to 0.300%
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 1.32%
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 November 2020
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