Average two-year fixed rates rise above three per cent for first time in seven years
According to Moneyfacts, it is the highest average two-year fixed rate since March 2015 when rates were 3.06 per cent.
The report added it is the seventh consecutive month of increases, with rates rising by 0.69 per cent since December.
It noted that the average two-year fixed rate at 95 per cent loan to value (LTV) was 3.35 per cent, which compares to 4.02 per cent a year ago.
It said product availability for two and five-year fixed rates had improved, reaching 369 in May, which is nearly back to pre-pandemic levels of 391 in March 2020.
Overall product availability has improved, with 5,087 residential products on the market, which is up from 4,925 in April and 3,927 in May last year.
The average rates for five-year fixed products have also risen, going from 2.79 per cent in May last year to 3.17 per cent in May this year. The report said that this was the highest for six years.
At 95 per cent LTV, five-year fixed rates now stand at 3.47 per cent, which compares to 4.17 per cent in the same period last year.
The report continued that the average shelf-life for products in May was 22 days, which is slightly up from April’s record low of 21 days.
It is also compares to an average shelf-life of 32 days in May last year.
Mortgage market could be fuelled by remortgagors
Eleanor Williams, spokesperson at Moneyfacts, said the mortgage sector had “demonstrated great resilience during unprecedented times” buoyed by strong demand and the race for space.
She said the market could continue to be fuelled by a shifting focus to remortgage borrowers as base rate rises encourage them to lock in fixed rate deals.
“This move may particularly be true for those who, by virtue of house price growth, could take advantage of increased equity in their home to potentially secure a lower rate,” she added.
Williams said the margin between two and five-year fixed rates was 0.14 per cent and the differential was the smallest since 2013 when it was 0.08 per cent.
“This could indicate that providers may be adapting their pricing towards borrower preference, potentially shifting towards longer term fixed rate options in order to protect themselves from further pricing volatility,” she explained.
Williams said first-time buyers could be “feeling disheartened” by rising house prices, mortgage rates and the cost of living, but pointed to improving availability of 95 per cent LTV deals.
She said: “While there may be some who are forced to delay their homeownership dreams due to wider economic pressures, recent movements in this sector seem to indicate that lenders could be keen to continue to cater to this demographic where possible.”
Williams also recommended that borrowers should “move swiftly to get the best option available” as product shelf-life remains low.
Nationwide increases rates by up to 20bps
This includes two and three-year fixed rates which have gone by up to 0.10 per cent up to 95 per cent LTV, and 90 per cent for remortgages.
Examples include the two-year fixed homemover mortgage at 60 per cent LTV, with a £999 fee, which now has a rate of 2.34 per cent, while the fee-free option has a rate of 2.64 per cent. The three-year fixed equivalents have the same rates.
Rate changes have also been made at 90 per cent LTV, with a two or three-year fixed mortgage and £999 fee now priced at 2.44 per cent, and the fee-free alternatives priced at 2.74 per cent.
For first-time buyers, rates begin at 2.39 per cent for a two or three-year fixed mortgage with a £999 fee, up to 2.89 per cent for a 95 per cent LTV fixed for two or three years with no fee.
For existing customers who are switching rates; two, three, five and 10-year fixes will see increases of up to 0.20 per cent up to 90 per cent LTV.
Applications for existing products must be reserved by 5pm today and changes will come into effect on Thursday, 21 April.
Halifax ups rates across mortgage range
Two-year fixed rates up to 90 per cent loan to value (LTV) has seen the biggest changes with increases of up to 0.28 per cent across select deals.
Rates now vary from 1.88 per cent for a two-year fixed rate at 60 per cent LTV with a £999 fee, up from 1.76 per cent. At 85 to 90 per cent LTV, the rate for a fee-free product fixed for two years is 2.37 per cent.
Five-year fixed rate mortgages for first-time buyers and homemovers have gone up by 0.12 per cent on products up to 85 per cent LTV.
Rates for these products range from 1.95 per cent for a 60 per cent LTV mortgage with a £999 fee to 2.37 per cent for a fee-free option at 80 to 85 per cent LTV.
For 10-year fixed rates up to 75 per cent LTV, mortgage rates have risen by up to 0.04 per cent.
Changes apply from 14 March.
Top 10 most read broker stories this week – 11/03/2022
Commemorating a decade of the Association of Mortgage Intermediaries and how to better engage with clients were stories which also held readers’ interest.
Mortgage rates rise as lenders pull deals off market – Moneyfacts
Just Group posts pre-tax loss of £21m following lifetime mortgage disposals
Landlords brace themselves for higher rates with longer term fixes, brokers say
Buy-to-let sector is ‘changeable lending environment’ – Armstrong
A decade of AMI: The biggest achievements, changes and upcoming challenges – Sinclair
Brokers still lean on their own knowledge with the aid of sourcing tools – Marketwatch
Swap rate and mortgage price environment is a complicated picture – Gee
Rising house prices spark interest in affordability – Firth
Brokers reveal how a market niche sent business booming
Engaging with clients is priority #1 for advisers – SimplyBiz
Affordability trends to be aware of this year – Toumadj
In response, lenders have recognised the importance of affordability and identified it as a key way to stand out from their competitors.
As a consequence, in the last year alone, at Mortgage Broker Tools, we saw over 1,000 changes to lender affordability calculators and a number of emerging affordability themes that we have recently covered in a review of 2021. So, what trends do we expect to see next year? Here are the top five affordability trends to look out for in 2022.
The number of affordability changes will only increase
Rates have historically been the main lever for lenders to pull in order to attract new business volumes, but it squeezes margins that are already tight.
We’ve lived through an ultra low-rate environment for some time now and, while more rate increases are expected, the Omicron variant highlighted the continued risk to economic recovery and any rises are likely to be slow and measured.
So, lenders are unlikely to have much wriggle room on rates for quite some time and will need to be more creative in order to meet their targets.
Affordability is fast becoming a popular way for lenders to stand out from the competition.
Specialist niches on the rise
Over the course of the last year, we’ve noticed an emerging theme with construction industry scheme (CIS), umbrella companies and joint borrower sole proprietor products. More lenders are offering specialist solutions and they calculate affordability in different ways, which means a significant divergence in the loan amount that could be achieved.
When it comes to contractors earning their income through the CIS, there are now 10 of the top 43 lenders that will take the gross weekly wage as if the applicant was employed, rather than the net profit figure.
This can make a big difference to the loan amount achieved by the borrower. For example, for an electrician earning £225 per day the difference in the maximum loan available could be as much as £85,000.
Growing number of specialist BTL lenders
Holiday lets were naturally a popular investment for buy-to-let landlords in 2021 as the pandemic made international travel a challenge.
It’s likely that the trend for staycations will continue even beyond the pandemic as people become more conscious of their carbon footprint and the range of available domestic properties for a short stay improves.
Similarly, there has been no let-up in tenant demand for houses in multiple occupation (HMOs) as a source of affordable housing and buy-to-let investors are increasingly looking to these more complex forms of investment as a way of achieving a stronger yield.
Lenders have responded, with new entrants and products in this part of the market and this is only expected to continue.
Affordability will be a key battle ground for lenders. Analysis of real cases processed through the MBT research platform shows that, in the first 10 months of 2021, the difference between the average minimum and maximum loans available to an HMO investor was £295,636 versus £237,265 for a holiday let.
Comprehensive research across the whole market is hugely important in these niche areas and it will become more vital as new entrants enter the market and enhance their propositions.
Later life lending takes a more central role
By 2030, more than one in five people will be aged 65 or over, according to Age UK, and many of these will have outstanding mortgage debt.
Demographics dictate that later life lending is going to become a more prominent part of your offering and lenders are working on ways to offer affordable, sustainable loans that meet these requirements.
Borrowers in this age group typically get £66,000 less than the rest of the market. Affordability for later life lending is often constricted by term lengths and retirement ages, despite the fact that they generally have higher earnings.
We know that this is on the “watchlist” for a lot of lenders, so watch this space.
Alternative lending options to stretch affordability
As property prices continue to grow faster than income, lenders are considering more creative ways to enable borrowers to achieve the loan amount they need to reach their goals.
This year, we expect to see the launch of long-term fixed rates amongst other alternatives.
We expect a combination of lender innovation and increased adoption of technology by brokers will lead to an increase in the use of alternative lending approaches to stretch affordability. So, expect to see even more affordability changes in 2022.
Mortgage rates rise across the board but remain low annually – Moneyfacts
Moneyfacts’ UK Mortgage Trends Treasury report showed that, as expected, tracker rates rose when the base rate was increased from its record low of 0.1 per cent to 0.25 per cent last month.
The average rate for a term tracker mortgage went up by 0.15 per cent to 3.53 per cent, reflecting the change.
Two-year tracker mortgage rates rose by 0.17 per cent to 1.75 per cent. However, this is 0.62 per cent lower than it was the same time last year.
As many lenders stated they will change their standard variable rates (SVR) in February, the average SVR remained flat on this time last year at 4.41 per cent.
Two and five-year fixed average rates increased in January, the third consecutive month of rises. This was likely down to lenders slowly increasing rates in preparation for a base rate change.
The average rate for a two-year fixed rate mortgage across all loan to value (LTV) tiers now stands at 2.38 per cent, a 0.04 per cent increase month-on-month. Five-year fixed rates went up by 0.02 per cent month-on-month to an average of 2.66 per cent.
Compared to last year, these were down from average rates of 2.52 per cent for a two-year fixed rate and 2.71 per cent for a five-year fixed rate mortgage.
For 95 per cent LTVs where rates are typically higher, average pricing for two and five-year fixed rates fell for the ninth consecutive month to 3.06 per cent and 3.33 per cent respectively.
These are the lowest on record and down on the 4.44 per cent and 3.62 per cent respective average rates of last year.
Eleanor Williams, spokesperson at Moneyfacts, said: “There may well be further increases to SVRs over the coming months, but the potential to save by switching from a variable revert rate to a fixed rate mortgage is clear, as the difference between the average two-year fixed rate and average SVR remains over two per cent.”
Williams added: “As total product choice continues to improve to levels not seen in 13 years, the overall average two- and five-year fixed mortgage rates have increased again this month, marking their third consecutive rise.”
“This echoes the trends recorded in previous months where the overall average rate rises can be attributed to increases across the rates offered at lower LTVs. Indeed, this month we recorded increases to all two-year fixed rates across the LTV brackets, with the exception of 95 per cent and the niche 50 per cent LTV sectors.”
Rising mortgage rates will cause house prices to cool in H2, Capital Economics predicts
According to Capital Economics’ housing outlook, increased household cash savings, remote working and rates remaining at record lows for now will strengthen demand in the near term.
It referred to Zoopla and Rightmove reports which revealed heightened levels of searches during December, as well as reports from the Royal Institution of Chartered Surveyors (RICS) suggesting buyer demand continued to outstrip supply.
However, with inflation predicted to reach a peak of seven per cent this year, Capital Economics forecast there will be four more rate hikes to curb this taking interest rates to 1.25 per cent.
The firm predicted this would bring the average rate on newly-drawn mortgages from its current low of 1.5 per cent to 2.4 per cent by the end of the year.
Andrew Wishart, property economist at Capital Economics, said: “Combined with the large rise in house prices since the pandemic began, that will push up mortgage payments as a share of income to its highest since 2008.”
However, he noted that house price growth was not yet in its correction phase.
He added: “Overall, house prices look set to surpass most forecasters’ expectations in the first half of the year, but then as the rising cost of mortgage finance weighs on demand.
“Our forecast of a five per cent year-on-year rise in prices in Q4 2022 compares to a consensus expectation of 2.5 per cent.”
Sooner-than-expected base rate hike will have minimal impact on mortgage costs
Capital Economics recently revised its predictions for the base rate suggesting it would go up to 0.25 per cent by next spring, then rise to 0.50 per cent in 2023.
It had originally predicted that rates would not rise from their current record low until 2023 before reaching 0.50 per cent in 2024.
In a report today, Capital Economics said: “Given the elevated spread of mortgage rates over bank rate, this change may not apply much upward pressure to borrowing costs.”
The analysis said the reduction in the base rate from 0.75 per cent to 0.10 per cent was not passed on to mortgage rates which caused lenders’ profit margins to rise.
Although margins are expected to narrow if the base rate goes up, lenders’ confidence in the economic recovery, continued house price rises and improved risk appetite will balance this out.
This sentiment was also reflected in the Bank of England’s recent Credit Conditions survey which suggested lenders intended to ease credit conditions going forward.
However, Capital Economics said mortgage rates would not fall as low as originally expected.
It revised down its prediction that mortgage rates would drop to an average of 1.6 per cent by 2023. Instead, it forecast average rates to fall to 1.7 per cent next year, before rising to 1.8 per cent by 2023.
The firm suggested mortgage affordability would remain manageable as lenders seemed to be “prepared to accommodate households’ increased appetite for housing”. The analysis said this was evidenced by the jump in the size of mortgages being lent.
The analysis said “low interest rates and increased spending on housing costs” would also continue to support house prices. For this reason, Capital Economics said it still expected average house prices to rise by five per cent next year.
Top 10 most read broker stories this week – 17/09/2021
As did lender attitudes to low-rise buildings in this week’s Marketwatch. Readers were also intrigued by a report from Moneyfacts on declining mortgage rates and Propertymark’s analysis into government housing targets.
Rate reductions at Nationwide and Natwest also held reader interest.
Lender criteria will soon adjust to withdrawal of state support – Ian Wilson
Nationwide cuts select rates across higher LTVs
Government has not convinced lenders low-rise buildings are less risky – Marketwatch
Average mortgage rates record largest monthly decline since May last year – Moneyfacts
Green mortgages are too niche and need more development – Burridge
Natwest makes widespread rate reductions across new and existing business
UK government will not meet 300,000 homes a year target until 2028 – NAEA Propertymark
Average mortgage rate to fall to 1.6 per cent by next year – Capital Economics
Brokers are still treading carefully with mortgage applications – Firth
BMPS: Lender liquidity will drive ‘plentiful, competitive’ mortgages – Regnier – exclusive
Average mortgage rate to fall to 1.6 per cent by next year – Capital Economics
Capital Economics has suggested the average mortgage rate will fall to 1.6 per cent by the end of next year.
Average mortgage rates sat around 2.1 per cent from 2017 to 2019 the firm said, before dropping to 1.85 per cent in July this year as lenders’ risk appetite improved.
At Mortgage Solutions’ British Mortgage and Protection Senate last week, Yorkshire Building Society’s chief executive Mike Regnier also suggested rates would remain low due to excess liquidity in the market.
Additionally, the Bank of England is expected to keep the base rate at its current record low of 0.1 per cent until 2023 which will support cheaper lending.
Capital Economics said this coupled with a lack of supply would keep property prices high.
The number of second hand homes on the market is close to its lowest level on record and declining seller instructions recorded by the Royal Institution of Chartered Surveyors (RICS) indicated a slowdown in new listings.
In June, Propertymark NAEA warned that the average stock per each estate agency branch was at a 19-year low.
The firm also pointed to annual house price growth in other countries such as Germany, the Netherlands, Denmark and the US where respective increases of nine per cent, 11 per cent, 15 per cent and 18 per cent have been seen.
Within the UK, increased household savings and continued home working could also influence moves providing an additional boost to house price growth.
As a result Capital Economics revised its forecast for house price growth for next year up from 3.5 per cent to five per cent.
Andrew Wishart, property economist at Capital Economics, said: “The end of the stamp duty holiday may do little to dampen demand and homes for sale are in short supply.
“Overall, tight supply and robust demand mean that house prices will retain their momentum, so the consensus forecast that house prices will rise by 3.5 per cent in 2022 now looks too pessimistic.”