As if you thought the world couldn’t get any stranger (from a mortgage perspective or otherwise), I understand that the chemically fuelled, Maraca shaking, Bez of Happy Monday’s fame is to start a ‘Joe Wicks’ style fitness class during lockdown… If anything summed up the state of play right now, that’s it is right there…
While many of us are now home schooling again, or doing our darndest to be classed a key worker, the weeks (and possibly months) ahead may seem daunting. Weirdly, it doesn’t seem that bad this time around, perhaps as we are far more conditioned to the current state of affairs and we have all invested a lot of time and energy making remote working easier, or perhaps that the vaccine roll out is well underway it doesn’t feel so endless.
In any event, there is quite a bit to remain positive about, so I have looked at the two key themes of last week to that end:
Firstly, and as I had predicted (not gloating, honest… but see here for proof) Credit Conditions are indeed easing. Last week both Barclays and HSBC came back in to the market to support borrowers with just a 10% deposit. With such large lenders coming back into this area it really gives the market as boost.
However, where the mortgage Lords giveth, they also taketh away. Self Employed borrowers took a hit last week as Halifax reduced the amount they will lend to 4.49 x income and Santander reduce their LTV to 60% (meaning you need a 40% equity/deposit to get a mortgage from them). That feels like a bit of a kneejerk reaction to lockdown. Especially on Santander’s part. They have been very prevalent lending to Self Employed borrowers throughout the Covid period, and for that they deserve a lot of credit. I suspect it is more a case that they feel over-exposed in this area now due to that, while also suffering horrendous service delays, so it is logical from their point of view to restrict both the riskiest and time consuming applications for the time being. I hope to see them back where they were very soon.
Self Employed borrowers still have a raft of choices, so this is no disaster, but there is no getting away from the fact that if you are deemed as ‘Self Employed’ (which is a wider definition than you may think, as for most lenders if you have over 25% of the shares in a business you will be treated this way), extra care needs to be taken and this is where a good broker is worth their weight in gold.
Negative Interest Rates
This debate reared its head again last week as Morgan Stanley has said it expects the Bank of England to cut interest rates to 0% in February. However, not everyone is convinced the BoE will have to take rates below zero.
“We have a positive view on Sterling overall. The Brexit risk has been removed but it’s not really back to normal for Sterling so we can start to think of the valuation of Sterling versus other currencies,” said Justin Onuekwusi, portfolio manager at Legal and General Investment Management. “We see it as still quite undervalued especially as the new COVID-19 strain won’t remain a UK phenomenon. Negative interest rates is definitely a risk but it’s not our base case.”
So in English, that means we could see UK Interest Rates go below zero but that remains unlikely. Money markets haven’t really reacted to the new lockdown with most rates staying broadly flat for now (see below).
I would personally be very surprised to see rates hit 0% or lower. The key indicators for that view are money markets which have remained flat and the FTSE which finished the week up. So no signs of any major market moves. I suspect last week was very much a ‘wait and see’ so I will be keeping a very close eye on how this develops.
From a mortgage perspective it doesn’t really matter if rates do go down as it is unlikely to change products pricing in any event. Lender pricing is more linked to capacity than funding, and has been for a good 6-9 months, which I don’t see changing until well after lockdown ends.
Most lenders have international processing centres so even when the UK is Covid free (what a wonderful thought…), until globally that is the case, lender processing issues will remain and therefore, that will drive their pricing.
Market Rates pretty flat last week as discussed above. So nothing more to add on this point.
That said, it has had no impact on mortgage rates which have crept up, 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 0.001% to 0.026%
2 Year SWAP = up by 0.013% to 0.061%
5 Year SWAP = down by 0.018% to 0.209%
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 2020