Big hits in the mortgage world
We’ve seen some big hits in the mortgage world this week so here’s an update from your favourite London Mortgage Broker.
Last week saw some really big numbers so I felt it was worth exploring that in more detail:
- Average House Prices Rise 11.8%
- Figures from the ONS and Land Registry confirmed that the annual rate of house price inflation was now at 11.8% which has sent the average price of a property to £270,000, an all-time record. The lowest annual growth of the UK regions was in London, where average prices increased by 2.8%, down from 6.7% in August. This represents the lowest annual growth in London since July 2020
- Inflation Hits 4.2%
- The ONS confirmed that the rate of inflation in the UK was at 4.2% in October, up starkly from 3.1% in September. So this has fuelled the flames for a rate rise in December and opened up this now very well-worn debate of – is this inflation purely transitory coming out of a post lockdown world OR are there more fundamental underlying issues? I suspect the truth is in the middle, which should prompt the Bank of England to act in the coming weeks. That said, interest rates are not set to soar (see below) as the expectation is that the UK Base rate will be circa 1.25% in 5 years’ time (up from the current 0.1%). Interest rates simply can’t go too high as just the debt servicing on the National Debt is over £6.3bn per month (yes six point three billion pounds every single month and rising). So perversely, higher inflation isn’t such a bad thing in the short term in that context, as long as wages and GDP are on the up also.
- Nationwide Profits Up
- This one caught my eye for a strange reason. Primarily, it is good to see the 2nd largest mortgage lending UK making healthy profits from its mortgage activities, but what struck me was that Nationwide’s profits were up to £853m in the half-year to 30th Sept (up from the £361m for the same period in 2020), but interestingly their market share was down slightly from 11.4% in 2020 to 11.1% so far this year. Just shows how buoyant, and lucrative, mortgage lending has been in the last few years, that you can more than double your profits but yet lose market share. I don’t think I have ever seen that.
- NatWest Completes Purchase of £3BN of Mortgages from Metro Bank
- Last week, NatWest completed the above purchase of mortgages from rival bank Metro. This is very noteworthy as if securitisation comes back, this will further boost the funds available for mortgage lenders to fund more mortgage lending.
- Very simply put, rather than Metro sitting on a £3bn loan book, collecting interest and capital repayments, over a 20-30 year period in which they will look to re-lend the money and skim the profit, this means they can realise that £3bn immediately. The timing was more to do with Metro needing to raise funds to make amends for some issues they had with not correctly labeling some loans as commercial, instead of saying they were residential (which is a highly technical point I won’t bore you with but it is all to do with the amount of cash the bank needs to hold for such loans, as you need less cash for residential loans than you do commercial), but this more than ticks that box and they’ll be plenty of money to re-lend back out much faster.
- So this could mean their pricing gets cheaper as they can source cheaper money this way. It was this activity that all but stopped post-credit crunch in 2007 (yes, 2007, as we didn’t feel the impact until 2008), so if appetite returns for such loans, it will only boost the money available which will keep mortgage rates lower for the long term, even if the BoE pushes up their benchmark rate. It would need to be on a much larger scale than this, but a very noteworthy event.
If you would like more information on how the big hits in the mortgage world this week affect you and your mortgage, please speak to one of our advisers.
Money markets all nudged down again last week.
If the new expectations are true, that the base rate will go to circa 1.25% by 2023, the current batch of 5 year fixed rate products look exceptional value so we do expect those to readjust in the coming weeks.
Nonetheless, 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/equity, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling = down by 0.004 at 0.112%
2 Year SWAP = down by 0.012% at 1.107%
5 Year SWAP = down by 0.012% to 1.240%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.51%
2 Year Fixed Rates from 0.89%
5 Year Fixed Rates from 1.29%
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 at a time when we expect a rise in interest rates or if you would like more information on how the big hits in the mortgage world affect you and your mortgage.
Source: Twenty7Tec November 2021
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