The property market, Yin to mortgage lending Yang
Another week in the property market, and another release of a record low mortgage rate! This time, Platform (the broker lending arm of the Co-Op Bank) has steamed in with a 0.79% 2 year fixed rate!
So the mortgage rate war wages on unabated, despite recent movements upwards in money markets… So I have given up trying to call the bottom of the market, as logically we should be past that now, but logic hasn’t been a big theme of the last 18 months. But if we aren’t there yet, we are very close indeed.
All that said, mortgage lending simply doesn’t work without property to lend against. So I have picked out a few themes below on the property market, which is the Yin to the mortgage Yang.
Property Market Prices March On
Research from Rightmove on the property market showed that house prices have moved up over the summer, which bucks the usual trend this time of year.
As a result, average asking prices have risen by 0.3% this month to hit a new all-time high of £338,462 nationally.
Buyer demand per property for sale is now more than double that of pre-pandemic levels. However, Rightmove says there are early signs of more properties coming to market, which may help to slowly rebuild buyer choice. In the first two weeks of September, the number of new listings is up by 14% compared to the last two weeks of August.
Leasehold Ground Rent Reform
Following a probe from the Competition and Markets Authority, the Countryside Properties Group’s policy of doubling ground rents every 10-15 years was ruled “unfair”. This is a landmark ruling as the majority of major developers also had this policy and watched this test case with interest.
This has followed pressure from consumer groups as millions of buyers had purchased properties that some major lenders were deeming “un-mortgageable”.
So this will be a huge relief for anyone who found themselves in this position as the vast majority of other major developers have followed suit and agreed to keep ground rents at the current level or in line with inflation, which is far more reasonable.
Govt Plan to Build 300,000 Houses A Year an ‘Empty Target’
Propertymark, an Estate Agency trade body, has branded the Governments’ plans to build 300,000 new homes a year as an ’empty target’.
The trade body says that a rise of only 6,190 new builds, to 220,600 between 2019 to 2020 means that the promised target of new homes built per year won’t be delivered until “at least” 2028.
Earlier this month, the Office for National Statistics released data showing that construction output sank to pre-pandemic levels in July, with new work in private housing falling 7.5% on a monthly basis.
It is one of the simplest market dynamics of all – supply and demand – and with the supply so scarce, prices will continue to rise. The added perversity of this is that as prices rise, lenders have more money to lend as they can release some funds that had been kept aside. This is known as ‘capital Adequacy Ratios’ where lenders have to keep more money aside for ‘riskier’ loans, which are typically those with smaller deposits. So if prices go up by 10%, that 95% mortgage that a bank did 1-2 years ago is now a 85% loan (or less) which means the bank can loosen the purse strings.
So weirdly, as prices rise, more money is available from mortgage lenders which exacerbates the issue.
As I have said many times before unless a Government-backed scheme of house building kicks off, and to an epic scale at that, this long-term trend is set to continue.
Money markets all nudged up again last week. As per recent updates, the outlook is much flatter than had been the case a few weeks back but we’ll keep a close eye on this to see how that classic relationship between inflation and interest rates plays out.
Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling = up by 0.008 at 0.070%
2 Year SWAP = up by 0.037% at 0.559%
5 Year SWAP = up by 0.072% to 0.843%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.85%
2 Year Fixed Rates from 0.79%
5 Year Fixed Rates from 0.91%
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 September 2021
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