Welcome to today’s email – a property market and mortgages review by our ‘Mr Mortgages’, Peter Faulkner…
UK mortgage approvals fell more than expected in April to their lowest level in nine months, adding to the signs that new rules on bank lending have taken some of the heat out of the housing market. The Bank of England said on Monday that mortgage approvals numbered 62,918 in April, down from 66,563 in March, marking the third consecutive monthly
slowdown. Mortgage completions are down to the lowest level for 10 months. 48 per cent of new mortgages were taken up by first time buyers (FTBs), up from 38 per cent last year with only 4 per cent of FTB mortgages completed in the London area.
Managing expectations is the mantra now amongst agents. Potential clients often tell me that the comparison websites tell them they can have such and such a mortgage at very low rate with very low costs. These headline mortgage products do exist, but most people will not fit them. This reminds me of a customer in a shop I owned many years ago
saying the item is too expensive, ‘it is much cheaper down the road’ to which I suggested he should go down the road. He shouted, ‘But they are closed’. I replied, ‘All our products are cheaper when we are closed’.
Lenders have de-skilled many staff levels and now rely heavily on computer software to filter applications. (Forget the old days when valuations could be appealed and lender’s business development managers or bank managers could help; they often cannot as they no longer have a mandate. More than ever people are experiencing, the Little Britain line ‘…computer says no’. By this time, the client has lost money on searches, valuations and booking fees, had a record placed on their credit file and lost the property because the delays have caused the chain to collapse.
Another comment I often hear is, ‘I don’t want to pay broker fees’ The good news is you don’t have to, just do it all yourself and good luck with that. A broker has to cover costs of regulation and compliance and indemnity insurance and continual professional development and training and office overheads and wages, before they open the door. FCA, Office of Fair Trading and insurance costs have all increased heavily above inflation and someone needs to pay for this. A good broker provides an added value service that protects the customer with access to the entire UK lending market and succeeds in getting the most appropriate mortgage.
Be aware that (as with other services) with independent mortgage brokers, you often get what you pay for. It is not just about a mortgage product in isolation, the client’s aims and objectives need to be married with their situation and other commitments now and into the future, which is why the broker/lender needs a great deal of personal and financial information. With a broker, all this needs to be assessed before approaching the right lender. These days, clients should ask not ‘can I get the cheapest deal’. They should start with ‘can I get a mortgage?’ Being an independent mortgage broker, I would say all the above, wouldn’t I? I agree that I do have a degree of bias.
UK average house prices have risen by over 11 per cent but this does not reflect the wide variances around the country and is year-on-year. Reports are coming in that the rate of growth has dipped in the last two months. Over the last year, London and the South East have soared by over 17 per cent with some hotspots recording above this level. Northern Ireland comes in second with 11 per cent growth, Yorkshire, Midlands and South West averaging between 5 per cent and 8 per cent, Wales 5 per cent and Scotland with no growth. These are averages with some parts of the country within these regions showing negative growth. It seems a contradiction with lending down and prices up. The concern is the policy decision makers are looking to see if the new MMR rules will feed in to cool the market and, if not, what measures may be taken to slow the housing market down. Headline proposals like reducing H2B available from maximum house price of £600k to £300k for FTBs will not have much impact.
The question on everyone’s lips is will the Bank of England Monetary Policy Committee vote for an increase in interest rates in the near future? Pressure is mounting to start making regular ‘baby step’ increases against more rapid increases expected in 2016/17. Experts predict a small increase as early as February next year, three months before the election. The driver for this is the latest economic figures showing the UK having the strongest GDP growth of all western economies at 3.4 per cent last month and that there is increasing pressure to improve the situation for savers. The BoE is suggesting tighter controls on mortgage lending to slow own house inflation.
Our view from all the research and reports we have seen is that the BoE rates will get up to around 3 per cent by the end of 2017. Those on tracker rates now at 2.15 per cent over BoE base rate paying now at interest rate of 2.65 per cent could see their interest rate rise to 5.15 per cent, an increase of nearly two times present payments and possibly trapped if they have an interest only mortgage as, under new affordability rules, capital repayment and interest only mortgage products will be available and their own income situation may not have recovered from the recession. For example, if present mortgage interest only payments are £552 per month on a £250,000 mortgage, this will become £1,076 if rates go up by 2.5 per cent. Mortgage holders need to prepare for this.
Student loans are now being taken into account by lenders for MMR affordability calculations. Universities and student loan bodies and the government have said in the past this would not be the case. However, FCA guidelines are demanding that lenders take student loan debts into account. At present student loan balances and payment history does not appear on credit files but clients will be required to declare their student loans and how much they pay at application.
To fix or not to fix is of serious concern to most clients on variable or tracker rates. There are some excellent five year and 15 year fixed deals available. Payments would be higher than tracker or variable rates for the next 12 to 18 months or so, with break even and potential saving over the remaining years. Considering that rates have been at an historic low for seven years, most feel the only way longer term is for rates to rise.
Best value deals that are suitable for many that fit include:
B2L (purchase and re-mortgage) at 75 per cent LTV (interest only) at 3.55 per cent variable for term of the mortgage, Lender fee £999.
Residential purchase at 85 per cent LTV (capital and Interest) at 3.39 per cent variable for life of the mortgage, less a loyalty discount after five years of 0.24 per cent, lender fee £999.
Best 10 years fixed rate residential available is at 10 year term at 3.89 per cent on 70 per cent loan to value.
As ever, good advice from Mr Mortgages, Peter Faulkner. Email back if you’d like to talk to Peter by email or by ‘phone.