Mortgage Loans Get Larger
Navigating the complex world of mortgage loans may seem tough but if you feel you have had a hard week, just spare a thought that it could be worse, you could be Ole Gunnar Solskjaer…
Conversely, it’s a good time to be in the property market, mortgage loans are getting larger, credit conditions are easing, prices are rising, so on that note, let’s dive into those points in more detail:
Loans Get Larger
Last week, Halifax became one of the last main lenders to introduce large mortgage loans for higher earners. It is now becoming a market norm that you will be offered 5.5 x your income if you earn above £75-100k (depending on the lender) either yourself or with a combined with your partner. In fact, there are a few lenders that will do 6 x your income, and some lenders also include 100% of variable income such as bonuses/commission (and in some cases vesting stock schedules). So this has significantly boosted a lot of people’s borrowing capacity in recent weeks.
This is an age-old dynamic that higher earners have a greater capacity for borrowing. Once you have paid for your food, utilities, etc., there is simply more disposable income the more you earn.
As we are climbing out of the restrictive lending conditions we saw during the pandemic, and the long term view of rates is to remain low (to qualify that, the ‘average’ UK base rate pre-2008 was 5%, but recent expectations are that the base rate won’t go over 3% in my lifetime…) there has been a push to lend more per client than has been the case in a long time.
This is also part of a trend we have seen since the start of the pandemic that lenders want more low-risk business, and higher earners are generally seen as lower risk. Also, with an environment of less resource due to Covid restrictions, it simply takes as much resource to process a loan for £1m as it does for £100k, so why not do a 1 x £1m loan, as opposed to 10 x £100k loans as the net position is the same for the bank and the quickest way they can boost their lending figures by writing larger loans.
Talking of increased borrowing, we can look forward to the Autumn budget this Wednesday. Usually, this is referred to as the Autumn Statement but it has been elevated to full budget status with everything that is going on.
Rishi Sunak has the very unenviable job of attempting to balance the public finances in the wake of borrowing £320 Billion during the pandemic and is also projected to borrow £180 Billon MORE by year-end.
We are hemorrhaging money as a country which is an awful state of affairs (in fact so bad, the last time the country didn’t make a loss was 2001 and public debt now tops £2.2 TRILLION which is 106% of our GDP…), so do we enter a phase of bone-crushing taxation or keep hoping output picks up? I suspect very little will be tackled this time out for fear of staving off this very fragile recovery, but you have to pay the Piper at some point…
House Prices Roar On
Both Rightmove and the ONS (Office for National Statistics) reported very large gains in house prices.
Rightmove has described the autumn as a ‘second wave’ of activity as prices have jumped by 1.8% this month, the largest single-month rise since October 2015. They have also seen a ‘full house’ of growth in every region in the UK for the first time since March 2007. The number of sales is up 15.2% compared with September 2019 in ‘normal’ market conditions
The ONS reported a similar picture that house price growth reached 10.6% as an annual rate in August (up from 8.5% in July).
That makes the average property in the UK now worth £264k (up £25k from just the month before). Scotland was the country with the highest annual growth, with prices up by 16.9% to £181,000; followed by Wales, where average prices were up 12.5% to £195,000; England, where prices rose 9.8% to £281,000; and Northern Ireland, where prices were up 9% to £153,000. London was the region with the lowest annual growth for the ninth consecutive month, with prices up 7.5% year on year to £525,893. However, at 5.6%, monthly growth in the Capital was higher than anywhere else.
Combine these numbers, with the increased capacity to borrow detailed above, with the continued lack of property on the market, we just can’t see prices coming down anytime soon. No doubt we’ll get the usual annual slowdown over the festive period, but that may be respite ahead of a busy spring market by the looks of things…
Money Markets continue their march upwards, which is now filtering through into higher mortgage rates.
So the debate isn’t ‘if’ the Bank of England will raise the base rate, but ‘when’. With inflation dipping unexpectedly to 3.1% last month that seemed to push the expectation to December, but Huw Pill, The BoE’s new chief economist was quoted last week as saying it is likely inflation will hit 5% early next year and it will be a ‘live’ decision in November as to whether they should raise interest rates then.
Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate for mortgage loans if you have a 25% + deposit/equity, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling = up by 0.086 at 0.211%
2 Year SWAP = up by 0.187% at 1.114%
5 Year SWAP = up by 0.148% to 1.48%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.79%
2 Year Fixed Rates from 0.84%
5 Year Fixed Rates from 0.89%
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 October 2021
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