A number of mortgage lenders are lowering their rates, responding to a calming of the financial markets following the turmoil created by Liz Truss’s ill-fated mini-budget.
Mortgage brokers are reporting that HSBC, Virgin Money, Accord Mortgages, Clydesdale Bank, Coventry Building Society, Halifax and NatWest are among lenders that have cut rates.
Despite the base rate being hiked to 3% last week swap rates – which influence the cost of funding – have come down since new PM and Chancellor Rishi Sunak and Jeremy Hunt replaced Truss and Kwasi Kwarteng.
The Mortgage Works
The Mortgage Works made a number of reductions today, with pricing being split between products for landlords acting as individuals and those going through a limited company. They start at 3.99% for individuals and 4.74% for limited company landlords.
Daniel Clinton, head of The Mortgage Works, said: “As one of the largest buy-to-let lenders in the UK, we are continually looking at ways we can support landlords by offering them a wide range of options. These latest reductions to our fixed rates will help those who want to maximise cashflow while maintaining certainty over their repayments.”
For individuals buy-to-let rates include: a one-year fixed at 3.99% with a 2% fee, available up to 75% LTV; a two-year fixed at 4.39% with a 3% fee, available up to 65% LTV; a five-year fixed at 4.89% with a 3% fee, available up to 65% LTV; and a two-year tracker at 3.24% (Bank Base Rate plus 0.24%) with a 3% fee, available up to 65% LTV.
For limited company landlords there is: a one-year fixed at 4.74% with a 2% fee, available up to 75% LTV; a two-year fixed at 4.99% with a 3% fee, available up to 75% LTV; a five-year fixed at 5.49% with a 3% fee, available up to 75% LTV; and a two-year tracker at 3.49% (Bank Base Rate plus 0.49%) with a 3% fee, available up to 75% LTV.
The above are available for purchase and remortgage with other rate/fee and benefit combinations also available.
All TMW tracker products come with the switch to fix facility which allows customers to switch to an existing customer fixed rate at any time without incurring Early Repayment Charges.
As a result of these changes the buy to let stress rates will now be between 5.99% and 8.79% depending on the product selected.
How Lenders Are Preparing for A Complicated Property Landscape
In the UK, property is never far from the headlines.
However, in times of broader economic disquiet, the market comes under even greater scrutiny.
And so it is that speculation is rife around the future prospects of property on these shores.
It should not be understated how the wedded challenges of spiralling inflation and rising interest rates will influence how finance works for the foreseeable future.
Inflation will take a major toll on businesses and households, while a departure from the historically low interest rates we have enjoyed in recent years will likely stifle some individuals’ journey up the property ladder.
In turn, lenders must be alert to how the property market will shape up in response to diminished demand in some areas, but also a flood of new demand in others.
While much of the focus on the impact of these market conditions will rightly centre around how it will impact on the majority, we are also certain to observe changes at the higher end of the market – to which the finance sector must be agile.
Resilience of the property market
There are plenty of causes for optimism.
The most recent set of house price data from ONS highlighted a 15.5% increase in the year to July 2022 – fuelling speculation of a bubble; and the frenzy of anticipation for it bursting, which will naturally follow such talk.
We must note, however, that this price rise is weighted by the period of quiet following the end of the stamp duty holiday in the summer of 2021.
Nevertheless, it highlights impressive growth through a tumultuous year.
That price growth has proven sustainable through a turbulent time in the UK is a testament to the market’s prestige – it is by no means ‘unsinkable’, but has proven resistant to speculation of its decline through numerous periods where cooling down appeared the natural course.
Now, though, some of the underlying economic factors of the past decade that have contributed to such significant price growth are being inverted.
Accounting for the spectre of high interest in the long-term, and runaway inflation in the shorter-term, means a somewhat different set of calculations.
It would have been foolish to depend on interest rates remaining at such low levels forever.
Whether forced to tip its hand, or encouraged by government policy, the Bank of England increasing rates was always an inevitability.
Indeed, one must only look back to the 90s and 00s to find interest rates which underline that borrowing remains cheaper today than for much of the recent past.
From my perspective, it would be a surprise to see the market spooked by this – it is natural that many products will be withdrawn from the market, but the finance sector is well-stocked with solutions.
For instance, high net worth individuals (HNWIs) are unlikely to be dissuaded from entering into the market, presuming there continues to be a wide range of tailored products available – a few percentage points here or there will not greatly impact demand.
Responding to the challenges
This will be the common refrain from the industry – variety. Higher base rates, with no clear indication of where they may peak over the next year or two, will drive lenders on to a fiercer competitive plane.
The specialist finance sector has good form for the conditions approaching.
For many brokers and borrowers engaging with the sector, a significant portion of the allure has been the ability to offer bespoke products tailored to individual circumstances – which the wider lending industry can often struggle to facilitate.
Lenders who are used to assessing applications on the merits of narrow tick-box criteria will struggle to keep pace with the increasingly disparate wealth structures and income streams of their customers as these heady times wear on.
Much of the response will take the form of new products, of course. Longer-term fixes, more short-term loans, and attractive refinancing options on existing products will be in high demand as investors and brokers look for the right package for their requirements in a challenging market.
Amongst all of this, it should be evident that communication will be vital, however the market takes shape.
Existing borrowers will be concerned over the affordability of their loan, and will certainly be keeping a watchful eye on their re-fix date; while prospective borrowers will require a slightly more personal touch in guiding their path to the right product than they may have experienced over most of the last two decades.
While the shroud of uncertainty lays over the market, it is critical that lenders try to work closely – and fairly – with borrowers to ensure the market stays active and progresses well.
Interest Rates Predicted To Peak At 4.5% Next Year - As Bank Of England Is Forecast To Go Lower Than Feared
Rates look set to peak at 4.5 per cent next year – far lower than previously feared.
As lower than expected inflation figures in the US put a lid on expectations of rate hikes across the Atlantic, investors are also betting on smaller increases in Britain.
In the aftermath of the mini-Budget in September, it was feared the Bank of England would raise rates above 6 per cent to bring inflation back under control.
But market projections suggest rates will rise from 3 per cent to 3.5 per cent in December, 4 per cent in February and 4.25 per cent in March before peaking at 4.5 per cent in May.
That would still be the highest rate since late 2008 during the depths of the financial crisis and send borrowing costs soaring for millions.
But it is far lower than previously feared and will come as a welcome boost for Prime Minister Rishi Sunak and Chancellor Jeremy Hunt ahead of next week’s Budget.
Not only do higher interest rates drive up borrowing costs for households and businesses, they make it far more expensive to service the Government’s mammoth debt pile which stands at over £2 trillion.
Despite the Bank raising rates to 3 per cent, inflation still stands at a 40-year high of 10.1 per cent, more than five times the 2 per cent target.
Bank of England bonds sale
The Bank of England has outlined plans to sell the billions of pounds of gilts it purchased to stabilise the UK bond markets in the aftermath of Kwasi Kwarteng’s mini-Budget in September.
Between September 28 and October 14, the Bank bought £19.3bn of UK gilts to restore calm and prevent several major pension funds from collapsing as interest rates on government debt spiked.
It now plans to begin offering these from November 29 to achieve a ‘timely exit’ from the market.