Mortgage Lenders Loosen Purse Strings
BoE Holds Interest Rates
Last week, the MPC (Monetary Policy Committee) of the Bank of England met and decided unanimously to hold rates at the historic low of 0.1%. There was no surprise in that decision as they have been very clear on the direction of travel – that despite inflation being above the 2% target, and set to go higher in the short term, they don’t feel the need to raise interest rates.
It’s going to be a very tough period for the BoE, as year on year comparisons don’t hold much meaning as we were in the grips of the first lockdown a year ago and large parts of the economy have been on ice ever since. As things thaw out and we all eagerly await the 19th July, it will be interesting to see what they do.
In normal times, high inflation and rising GDP will signal rate rises, but we are in far from normal times. They could well play a cautious hand until around September when the furlough scheme comes to an end, so we will finally see what level of true unemployment there is and what the effects of Covid have actually been.
If all goes to plan, there will be no Covid restrictions in place then either, (albeit with a huge question mark over travel) therefore, they can finally get a clearer picture of where the UK is at. Until then, it may well be a guessing game so their caution in moving rates up too quickly looks justified, but I still would not rule out a rate rise by the end of this year, or early next, which means we may well be looking at the lowest mortgage rates in history right now…
Lenders Loosen The Purse Strings
Research from Knowledge Bank (which is a tool for brokers to track the ever changing landscape of lender Criteria) last week showed that 2 major trends are driving the availability of mortgages:
- Mortgage Products are nearly back to pre-pandemic levels. This has mainly been led by the re-emergence of 95% mortgages becoming available again. This is a huge driver especially for First Time Buyers, so even with the Stamp Duty holiday coming to an end, that doesn’t mean the purchase market will slow down. This is a timely boost as otherwise we may see some of the gains in house prices reversed, but that seems unlikely now due to the sheer weight of pent up demand which stretches back to 2016.
- Lenders are relaxing their affordability rules. 3 lenders in the last week alone made it easier for people to get larger loans with them. This particularly favours larger earners, with one lender now offering a mortgage of 6 x your income if you earn £200k or more a year. 2 other lenders will offer 5.5 x your income if you earn over £75k and many more are taking between 65-100% of your bonuses/commission when assessing what you can borrow. With the backdrop of house prices moving up so quickly, this is a crucial point so that people’s buying ability keeps pace with house price rises.
Again, it is important to stress that we are seeing a return to pre-pandemic criteria and the loosening in criteria is very focused, so this isn’t a free for all that will create a bubble, but what I see as mortgage lenders taking a sensible risk based view which favours the higher earners. To be very blunt, if you have maintained a well paid job through this period, and/or been paid a bonus, you are about as good a bet for a mortgage as any lenders will see.
We are starting to see a clearer upward trajectory on market rates now, and as touched on in detail above, that means we could well be at the lowest point of this current cycle on the best mortgage rates.
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 Libor = down 0.001% at 0.081%
2 Year SWAP = up by 0.034% at 0.395%
5 Year SWAP = up by 0.007% to 0.751%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.99%
2 Year Fixed Rates from 0.95%
5 Year Fixed Rates from 1.14%
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 June 2021
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