Regular Updates from Nick Mendes and Ray Boulger
On this page you'll find the latest comments from our experts giving you information on what's happening in the mortgage and property markets now.
Today's "hold" announcement has been widely anticipated by the markets and commentators, with any further rate hikes looking increasingly unlikely.
UK economic activity is weakening, and inflation is on a downward trend. Now is the time to pause and monitor rather than adding further pressure onto borrowers and consumers.
Am sure in the MPC minutes to follow there will still be signs that rates could rise if data indicates further action.
But for now let’s look towards the Autumn statement to see what announcements the Chancellor has to make on the economy.
Latest Figures from Nationwide Reaction
Here are some thoughts on the latest Nationwide data:
The latest figures from Nationwide highlight the difficulty of the past 12 months for the housing and mortgage markets. Housing approvals were down 30% which reflects the sentiment on the ground - that for potential home movers and first-time buyers it may be worth delaying plans to purchase while they navigate between higher rates and also a market where its difficult to sell at a price that reflects last year’s market.
Mortgage rates have had a significant impact on affordability, and we will need to see a significant correction in house prices for the market to pick up. While expectations of a 10% dip from 2022's peak had been muted, it is likely to take a higher decrease closer to 15% or more to balance out, unless we see a sudden fall in mortgage rates which isn’t on the cards any time soon.
But we shouldn’t take the recent trend in lender reduction as a sign that this will continue into the new year. In the past few days gilts have risen and result swaps because of higher fuel and marketing, predicting once again further base rate rises following the recent hold.
There has seen a slowdown in lenders repricing as many delay their next course of action.
It also highlights the importance of speaking to a broker: now is not the time to second guess the market movement in order to secure a deal where you simply hope for the best.
It’s important to regularly review months in advance of when your deal is due to expire. A broker will ensure you move onto a lower rate with the existing or new lender to get the best deal.
Base Rate Decision Reaction
My reaction to today’s MPC decision to hold Bank Rate at 5.25% is that the key comments to note in the statement were:
- "Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."
- "Conditions were likely to warrant a restrictive policy stance being maintained until material progress had been made in returning inflation to the 2% target sustainably."
The good news is that the first bullet point suggests 5.25% is likely to prove the peak in the current interest rate cycle.
The less good news is that the second bullet point implies it may be longer before Bank Rate starts to fall than previously expected. Interesting that the MPC felt it necessary to include the PC word - sustainably - in its statement, despite it being rather meaningless in this context!
The initial reaction in the gilt market was for yields to rise slightly and so don’t expect 5 year fixes to fall much below 5% in the short term.
Hold in Base Rate
Yesterday's unexpected inflation 6.7% announcement in August eased some of the pressure on the Bank of England's decision making on whether to continue increasing interest rates.
Core inflation, which the Bank of England pays close attention to, fell to 6.2% from 6.9%. Moments after yesterday’s inflation announcements market expectations of a rate rise began to plummet, from what was an 80% certainty of a further rate hike down to an equal split.
A nice change compared to recent months when you could be certain of the MPC announcement at the beginning of the month.
There has been a steady decline in swap rates in recent days, which has resulted in many lenders reducing rates on both residential and BTL products, which is welcomed news for mortgage applicants and holders.
Whether today's hold is a sign of future long term direction remain to be seen.
In an unexpected announcement from the ONS, inflation in the UK fell to 6.7% in August from 6.8% in July. Chancellor Jeremy Hunt and Bank of England Governor Andrew Bailey had pre-empted an increase in inflation calling the expected increase a "blip."
Prior to this morning announcement, inflation had been expected to have risen to 7.1% mainly due to an uptick in fuel prices, up from around 6.8% last month.
What Does This Mean for the MPC Meeting Tomorrow?
Swap rates have been falling for a few days following Andrew Baileys comments stating we are near the top of the rate rise cycle. Despite the rise not being a full gone conclusion as it was in previous months, markets had increasingly pre-empted a further rate rise tomorrow when the MPC meet of 0.25%.
Bringing the rate to 5.5% and the 15th consecutive rise.
It will be interesting to see how markets react following today's unexpected inflation announcement and whether we see a rate rise tomorrow.
Any increase in Base Rate won’t have an impact on the current trend in lenders repricing their fixed rates downwards as a rate rise had already been factored into lenders' pricing.
Markets though will be paying close attention to the Governor’s notes following the announcement to assess whether we are indeed at the peak and if we should take the Governor's comments with a pinch of salt.
Comments on Bank of England Mortgage July Report 2023
Here are a few comments following the latest Bank of England mortgage July 2023 report released today.
Nick Mendes' comments:
The latest data released by the Bank of England for July highlights that "Net mortgage approvals decreased from 54,600 in June to 49,400 in July, while approvals for remortgaging slightly increased from 39,100 to 39,300 during the same period." This is in line with market conditions with many potential first-time buyers and home movers opting to delay purchasing in a period where mortgage rates had increased following stubborn inflation figures.
Approvals for remortgaging (which only capture remortgaging with a different lender) saw a slight increase to 39,300 in July, from 39,100 in the previous month, highlighting the lender competition to win new business following previous months of competitive product transfer rates.
It's also worth noting "Households withdrew a net £0.1 billion from National Savings and Investment (NS&I) accounts, following net withdrawals of £0.2 billion in June." While this doesn’t reflect savings within the UK as a whole, it follows a trend of households utilising savings to overcome household costs and reduce debts as rates increase.
Deliberating Whether to Choose a Tracker or a 2 Year Fixed?
Following last week’s positive news that both CPI and core UK inflation fell in June, markets now expect the Bank of England Base Rate to peak by the end of the year around 5.75% - 6%, down from previous predictions quoted at 6.5%.
Fixed rates are on a downward trend, but it may be months before we start to see 2 year fixed rates sub 5%.
Mortgage holders may be deliberating whether to choose between a tracker or a 2 year fixed.
Currently you can get a 2 year fixed rate with Santander at 5.94% in comparison to a 2 year tracker at 5.14% with Barclays.
The key benefits of a tracker mortgage are the flexibility and the ability to change to a new product without any early repayment charges.
Meaning that if fixed rates do fall within the next 24 months, you will be able to move onto a cheaper product sooner than if you were tied into a fixed rate.
Variable rates tend to depend on the mortgage holder's circumstances and attitude towards risk - despite revised Base Rate expectations homeowners will want to ensure that they have enough disposable income to afford further increases in their payments.
One of the factors that makes fixed rates so popular is that you know exactly how much your mortgage payment is going to be.
As the interest rate stays the same, you’ll be paying the same amount each month until the fixed rate ends.
Mortgage holders also find comfort in knowing what you’re going to pay each month which makes budgeting easier. You’ll be able to divide up your finances more clearly which can make sticking to a savings plan a lot simpler and more straightforward.
Whether a fixed or tracker mortgage is suitable for you will depend on your unique situation and attitude to risk. It's therefore worthwhile discussing this with a broker or your mortgage lender.
Thoughts on HSBC Latest Rate Rise and Halifax Index
HSBC gave notice of further rate increases last night, thoughts below:
While the majority of the big high street lenders had already made substantial increases to their rates, the past few days had seen a significant jump in swap rates with different asset management firms revising their expectations for further base rates increases. JP Morgan quoting 7% in recent days.
Despite the high street lenders sitting outside of the best buys, HSBC have made the decision to yet again increase rates. The question now is whether the other high street lenders will follow before the weekend.
On the Halifax report:
The property market had so far been resilient in riding the wave of constant pressure and overcoming early predictions of a significant house price crash. The latest Halifax report though shows the tide may have finally turned and the early predictions of a property price decrease are now showing early signs of what many had predicted.
The last few weeks of mortgage turmoil is certainly going to add to future pressure. Higher mortgage rates have seen home movers and first-time buyers adjust their requirements as borrowing has become more expensive.
While it is custom to list the property price higher to test the market and see what bids you may attract, sellers will need to be in tune with market conditions and try to compare this year to previous.
For buyers, if the price is right and the mortgage is affordable, no time is better than the present. It’s impossible to second guess when property prices will bottom out and when rates will come down to coincide at the same time. Property is a long term investment and history shows you will inevitably be better off in the long term.
1.5 Million Are Due to Come Off Fixed Deals This Year. What Will Happen to Homeowners Facing Much Higher Bills? Could It Cause House Prices to Crash?
The combination of those currently struggling to manage their finances and those coming to the end of their fixed rates makes the remainder of 2023 to be one of concern.
Recent figures from the FCA (Financial Conduct Authority), showed that the number of people fraught financially was up by 3.1 million from May last year. Research had shown the figure has risen from around 7.8 million (15%) in May last year to 10.9 million (21%) in January 2023. Adding the number of adults who had missed bills or loan payments in at least 3 of the previous 6 months is also estimated by the regulator to have increased by 1.4 million, from 4.2 million (8%) in May 2022 to 5.6 million (11%) in January 2023.
While we have seen average mortgage rates reduce following the highs of last year, mortgage rates today are still double from where they were 2 years ago, many homeowners will see their monthly payments increase beyond what they can afford.
Homeowners who are worried about their circumstances should seek advice either through a mortgage broker or speak with the lender. It's ok to say that you're struggling, banks have a duty to support and are prepared to work with homeowners to find a solution that works for all parties.
Most homeowners are opting for a product transfer when they come to the end of their fixed deal over remortgaging to a new lender. While in some cases this could be the most cost-effective option, the overwhelming number of people choosing to go down a product transfer route could be masking the true situation. Product transfers allow the homeowner to switch to a new deal without going through affordability assessments with their lender.
Recent Nationwide and Halifax house prices indexes - while they reported slightly different figures - the sentiment is the same that consumer confidence is returning. Activity amongst first-time buyers seems to have picked up; many homeowners thought have opted to remortgage and postpone any homemoving plans opting instead for home renovations.
While we may look back now at some of the property forecasts at the end of 2022 of a 10% - 20% house price dip with cynicism, 2023 property prices so far have been settled. The pressures for the remainder of the year will determine whether we see a crash.
Nationwide's New 0% Loan
In response to Nationwide's new 0% loan:
While there are other lenders that offer similar schemes - such as Skipton Building Society and Saffron's refurbishment loan - none of these are at 0%.
Sustainable lending is a hot topic at the moment with consumers taking an invested interest in how they manage their money but also the credentials of financial institutions.
Green products have typically been restricted to a small percentage discount of lenders' standard rates and/or cashback.
With the Government's net zero pledge and focus on the role of lenders in educating, promoting and helping customers invest in their homes to become more sustainable, this is a fantastic move by Nationwide.
Affordability will always remain a barrier for many households when it comes to retrofitting a home, especially when we consider it takes years for the investment to pay off.
There are other products expected to be launched this year.
While the markets have already priced in a 0.25% base rate rise at next week MPC, there continues to be volatility in the markets with swaps over the last few days.
These fluctuations are influencing lender pricing, with many lenders increasing their fixed rates in the last few days.
Expectation of a price war seem to have diminished at least in the short term, HSBC for example is currently market leading with their fixed rates, but from today (3rd May) rates across all LTV will be increasing.
With the markets inability to settle, we could expect to see further lender increase in advance of the MPC meeting next week.
Virgin and NatWest have also increased rate this week.
NatWest 2 year fixed at 60% LTV currently is 4.34% from 3rd May these increase to 4.49% up by 0.15%.
Trying to second guess when the right moment to fix and for how long will continue to be debated amongst many households and why now more than ever speaking with a broker who can assess your circumstances can ensure you are making the right decision.
Hamptons Latest BTL Report
The latest Hampton report on the exodus of landlords over 65 years of age might sound like positive news for first time buyers, with the prospects of more properties coming on the market. An old proverb comes to mind "be careful what you wish for".
The report went on to add that over the last 12 years, the number of landlords retiring has nearly doubled annually from 80,000 in 2010 to 140,000 in 2022.
Landlords have been under pressure in recent years with changes to regulations, tenant rights, tax, mortgage rates and future EPC requirements, makes you wonder will we see the same number of prospective landlords choosing to invest in the future.
Rents have increased year on year, lack of rental properties coming onto the market continues to grow as well as the changing demographic of tenants no longer reserved to first time buyers which ultimately means we should expect to see the rents continuing to increase putting more pressure on first time buyers trying to save a deposit.
We could see more innovation from lenders like Skipton Building Society who recently announced plans to offer deposit-free mortgages for “trapped renters,” First-time buyers without a deposit may soon have a new opportunity to get on the property ladder.
HSBC Offer Cashback on Product in Attempt to Win Business
HSBC offer cashback on products in an attempt to win business -
2023 is expected to be a difficult year for lenders with the number of applications submitted compared with the previous year’s substantially lower.
Following the pandemic, lenders have been able to reap the benefits of strong customer demand, low rates, for both purchases and remortgages.
In the last few months with purchase activity dropping and clients opting to do a product transfer over a remortgage lender are now looking at new ways to attract business in a limited pool of applications.
HSBC has entered the market with a cashback option as they look to tempt customers away from existing lenders and expect to see if lenders cannot compete on rate look to offer similar offers.
Fixed Rates Lower than Base Rate
The trend of fixed rates lower than base rate looks like it could continue longer than expected. Barclays have recently stated they expect to see a further base rate in May bringing to 4.5%, with swaps rates considerably lower which is positive new for homeowners.
2 year fixed at 60% LTV – Barclays – 4.08%
5 year fixed at 60% LTV – Principality – 3.95%
10 years fixed at 60% LTV – Halifax – 3.99%
With lower lending volumes expected for 2023, swaps at a healthy level we could see lenders competing for business again as they look to capture as much of the market as possible.
Since the start of the year, there has been an increase in clients now looking to review their remortgage options as well as home movers back on the property hunt.
The market has slowly moved away from the negative aftershock following the autumn mini budget with rates of 6% and an expectation of a 10% to 20% dip in property prices in 2023.
Since the start of the year fixed rate has fallen to reasonable levels, homeowners now feel in a position to review their mortgage. This is echoed in the number of mortgage application rise 36% to 82,315 from January to February.
Despite 5 year fixed rates priced cheaper than 2-year fixes, there is an overwhelming number of clients opting for a 2 year fixed rate.
Historically 5 year fixed rates tended to be a homeowner’s default option, when we consider recent rates as low of 0.79% in 2021 and a gradual increase in 2022 homeowners tied into longer term while they could.
While we do not expect to return to similar rates below 2% any time soon, rates are on a decline and there is an expectation that we will continue to see this trend continue over the next few years.
Choosing a 2 year fixed offers stability and the opportunity to rereview your options rather than being tied into a higher rate over a longer period, naturally any guidance comes down to each individuals circumstances.
Markets React Positively Following Base Rate Rise
Markets have reacted positively following the MPC decision to raise base rate to 4.25%, as it tries to bring inflation closer to 3% by the end of the year as mentioned in the budget. Swaps rates following the announcement had dropped to the lowest since early February.
It’s important to reiterate that despite the rate rise, this will only impact those on trackers or on the lenders standard variable rate. The reason for this is that fixed rates are not linked to base rate but Swaps.
Swap rates are based on what the markets think interest rates will be, if they rise then mortgage lenders will increase their pricing to maintain their profit margin, or if they rise too rapidly then they may have to pause lending or withdraw products until pricing stabilises.
Lenders had priced in the eventual rate rise so their won’t be many changes to fixed rate products on the market.
Moving forward, with lower lending volumes expected, and swaps at a healthy levels we could see lenders competing for business again which is positive news for homeowners.
Rates are expected to decrease on a gradual basis, HSBC today announced they will reduce both the residential and BTL rates across all LTVs.
When it comes to a mortgage application knowing whether to choose a tracker or a fixed rate will come down to individual circumstances.
For those coming into their last 6 months of the fixed rate expiring, locking in a deal now will mean you can hedge your bets if rates increase, you have peace of mind knowing have secured a lower rate. If rates decrease you can move to a new rate with the existing lender or move to a new lender prior to when your deal ends meaning you get the best of both worlds.