What a week …
I can’t help but get a feeling we are living in an episode of Black Mirror at present, or really for the last few years. As we seem to keep encountering ‘once in a generation’ events, which are happening quite frequently frequently…
As we have never seen a public health issue of this scale before (in the modern era anyway), it is very difficult to predict exactly what will happen. in the mortgage market. With the UK Government going such a long way to provide much needed financial support, and quickly, hopefully we will start to see a calm down in financial markets in the coming weeks. Only time will tell the extent of the financial impacts this outbreak is having, but most analysts seem to agree that we will see a sharp decline, but then a relatively sharp ascent from where we are now if all goes to plan.
If that is the case, what does that mean for the mortgage market?
We are yet to see fixed rate mortgages come down much, or at all. HSBC are the first major lender to announce a rate cut on their fixed rates which will come in next week (albeit in their higher loan to value bands – those with smaller deposits/equity). Trackers have of course come down, to such an extent that many lenders have pulled their current ranges to replace them with a higher margin. Some lenders such a Nationwide have pulled their Tracker products completely. Even if Tracker options are available, is that in your best interest? If we do see a market/economic recovery in the coming months/years, then rates will start to go back up again. So any ‘saving’ you will make now, may be wiped out down the line. These are extraordinary times, so it pays to keep tabs on the mortgage market and really think through the decisions you make now as they will have long term implications.
Overall, rather than seeing rates come down, we are starting to see lenders pull their products when they become the cheapest lender on the market. This is consistent with a falling market, as no lender wants to be the cheapest at present as they get inundated with applications. Couple that with the service issues we will face in the coming weeks/months ahead as bank staff will have to be away from work, but maybe not be able to work from home, along with the practical constraints of getting a surveyor round a property, means it could be slow going on any mortgage applications for the foreseeable future.
Lenders who have invested in technology will reap huge dividends here. As they can continue relatively normally, whereas many other lenders will not. If your current deal is up soon, or you have committed to a sale you want to make, you need to know the lender can come through for you in the time that you need them too. In some instances, the rate will become a secondary factor.
Stress test changes in the mortgage market
It is also worth noting that many lenders have taken the chance to reduce their ‘stress test’ rate in the mortgage market. Meaning you could well be able to borrow more now, than you could have a few weeks back. The Bank of England still have the rule in place that not more than 15% of a lenders new loans can be above 4.5x your income. However, we are seeing lenders offering 5.5x or even 6 x pre base rate cut so it will be interesting to see how far lenders will be willing to go now.
Lastly, I am keeping a very close eye on LIBOR, specifically, 3 month sterling LIBOR as that is where much of the mortgage lending is pegged too. Back in 2008/09, it stopped so much being a measure of interest rates, but more a barometer of confidence (which I suppose is all financial markets are anyway, but it is amplified at a time like this).
Libor has just started to creep up, which indicates mortgages rates may do the same as there becomes a squeeze on cash. This is certainly nothing like the downturn in 2008/09. Banks are vastly more capitalized than they were then and all indications are this is a sharp shock not a liquidity crisis, but that said, this is a very useful benchmark on what to expect on lending in the coming months.
There have not been any publications of SWAP rates since the Bank of England cut its benchmark rate down to 0.25% on 11th March (and then down to 0.1% on the 19th). However, Libor has crept up 0.031% to 0.536% in the last week for the reasons outlined above.
As you would expect, we are starting to see Banks pull their Tracker products and reintroduce new ones with larger margins as no-one predicted the rate cuts we have seen in the last few weeks. It would be very useful to read our update from last week on the technicalities of that, which you can do here.
2 Year Variable from 0.74%
2 Year Fixed Rates from 1.14%
5 Year Fixed Rates from 1.39%
BTL Rates from 0.99%
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 2020
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