RBS removes all trackers as Santander ups rates
The bank, which includes NatWest and Ulster Bank, is the latest lender to withdraw this kind of mortgage.
It is following the likes of BM Solutions and Scottish Widows Bank, while Nationwide Building Society withdrew its trackers before relaunching the range yesterday.
Since the Bank of England cut the base rate to its historic low of 0.1 per cent amid the coronavirus pandemic, almost a third of tracker mortgages have been pulled from the market.
Santander has increased its tracker differentials by up to 0.30 per cent due to “current market conditions”.
It has also removed its 60 per cent loan to value (LTV) large loan two-year tracker at 1.74 per cent with a £2,499 fee.
Rate changes include the 60 per cent LTV two-year purchase and remortgage tracker, which has been increased by 0.25 per cent to 1.19 per cent. This product comes with a £999 fee.
The rate for its 85 per cent equivalent has risen 0.30 per cent to 1.49 per cent and the 90 per cent LTV equivalent has gone up by 0.20 per cent to 1.69 per cent.
The 75 per cent buy to let two-year tracker has gone from 1.04 per cent to 1.34 per cent and the 75 per cent LTV help to buy product has gone up 0.25 per cent to 1.39 per cent.
Mortgage Solutions has contacted both banks for comment.
Nationwide reintroduces tracker mortgages
The mortgages will go live on 25 March, with house purchase and first-time buyer products starting from a rate of 1.39 per cent and remortgages from 1.19 per cent.
The products will cover a range of loan to value tiers and come with both £0 and £999 fee options.
Henry Jordan (pictured), director of mortgages at Nationwide, said the society took the “prudent decision” to consider the impact of the two interest rate cuts on its range.
“We are re-introducing two-year trackers to our mortgage range to enable us to offer products with flexibility and no early repayment charges,” he said.
Nationwide’s return is likely to be welcomed by brokers.
Analysis conducted by Mortgage Solutions found that a third of tracker mortgages had been withdrawn since the Bank of England’s last base rate cut to 0.1 per cent on 19 March.
Nationwide has also announced it will pass on a further 0.15 per cent rate reduction to existing variable rate borrowers to reflect the cuts made to the Bank of England bank rate.
This follows on from the society confirming it would pass on the initial 0.50 per cent reduction to borrowers from 1 April.
With the bank rate now at a record low of 0.10 per cent, Nationwide’s base mortgage rate (BMR) and standard mortgage rate (SMR) will reduce by an additional 0.15 per cent to 2.10 per cent and 3.59 per cent respectively, with these new rates coming into effect on 15 April.
Borrowers on an existing tracker rate mortgage will also see their rates reduce by a further 0.15 per cent.
Jordan added: “With a second cut in interest rates in just over a week, it is important that borrowers have clarity about what this second change means for them and the future interest and payments on their mortgages.
“By passing on this latest rate reduction in full, from 15 April, we hope to minimise mortgage costs for our members during this difficult period.”
Earlier, the society closed its dedicated broker support line as a result of government advice surrounding coronavirus.
Jordan added: “While we continue to work hard with valuation and conveyancing partners to progress applications, we ask members and brokers to bear with us during what is an unprecedented period.”
Markets expect base rate cut to zero – Maddox
The MPC also voted unanimously to enlarge the TFSME (Term Funding Scheme with additional incentives for SMEs) which was announced a week ago in its first intra-meeting action since the Global Financial Crisis.
The scheme will be available to drawdown for 12 months starting in April, providing additional incentives for banks to support lending to the SMEs.
Similar to the TFS, the scheme has a maturity of four years and the participating banks have the flexibility to repay in full or in part ahead of the scheme’s maturity.
Zero base rate
The market now expects the BoE base rate to be cut to zero for the next year.
Forecasts for three-month LIBOR (London Inter-Bank Offered Rate) and two-year swap rate were lowered by 25bps to 25bps for the next three months, while the forecast for three-year swap rate remained the same at 50bps.
Forecasts for five-year swap rate and 10-year swap rate, on the other hand, increased by 25bps to 75bps.
The Bank of England is taking out the big guns. The rate cut is mostly just a signal – trimming another 15bp to 0.10 per cent will have a negligible impact, as rates are already so low.
What will make a big difference are the two other measures announced by the bank – a massive 45 per cent increase in the quantitative easing programme to £645bn, and even more money to the funding schemes that can get cash to consumers and small businesses
Crowded market in recovery
Traditional banks and building societies have already lowered interest rates on mortgage products in response to the previous rate cuts on 11 March, resulting in mortgage customers benefitting from cheaper interest rates.
Due to the elevated volatility in the financial markets, we expect little activity from lenders to raise new funding this month until there are some signs of stabilisation and decreased volatility which can result in a very crowded market at some point this quarter when the market recovers.
Of note, the TFS launched by the BoE is likely to reduce the number of prime lenders accessing the wholesale market this year given they will take advantage of the cheap funding offered by the central bank.
The lack of supply may drive market spreads down in the second half of the year for non-bank lenders relying fully on the wholesale market to raise new funds – similar dynamics as post the Brexit vote in 2016.
Bank of England cuts base rate to 0.1 per cent; restarts QE
It is also restarting its quantitative easing (QE) project by purchasing £200bn of government bonds.
The central bank noted that the cost of borrowing was going up despite the government and bank’s economic and social interventions as a result of the coronavirus.
It warned that the spread of Covid-19 and the measures being taken to contain the virus will result in an economic shock that could be sharp and large, but should be temporary.
And added that the role of the Bank of England was to help meet the needs of UK businesses and households in dealing with the associated economic disruption.
The bank held an additional special meeting of its Monetary Policy Committee (MPC) today and judged that a further package of measures was warranted to meet its statutory objectives.
The committee voted unanimously to implement the rate cut and restart the quantitative easing measures, taking the total stock of bonds held to £645bn.
Explaining the decision, the bank noted that the UK gilt market had deteriorated as investors have sought other measures and as a consequence, UK and global financial conditions have tightened.
Taking out the big guns
Alex Maddox, capital markets director at Kensington Mortgages highlighted the scale of the move.
“The Bank of England is taking out the big guns. The rate cut is mostly just a signal – trimming another 15 basis points to 0.10 per cent will have a negligible impact, as rates are already so low.
“What will make a big difference are the two other measures announced by the bank – a massive 45 per cent increase in the quantitative easing programme to £645bn, and even more money to the funding schemes that can get cash to consumers and small businesses.”
Carney admits latest decision to hold interest rates was ‘finely balanced’
Carney noted that despite choosing to hold the Bank Base Rate at 0.75 per cent there were still plenty of reasons to remain cautious about the UK economy – and that the next rate move could be in either direction.
He added that the Brexit process had made a significant negative impact with quarterly growth in 2019 averaging only 0.25 per cent, around half the average in the previous three years.
Business investment rose just 1.25 per cent since the 2016 referendum, significantly below the 12 per cent average seen in the rest of the G7 over the same period.
Overall, UK growth last year was the weakest since 2010.
Writing in his annual report to the Treasury Select Committee, Carney said: “Throughout the past year, my view – shared by majority of the [MPC] – has been that the recovery in confidence and activity would be sufficiently strong without additional support from monetary policy.
“I therefore voted consistently to maintain Bank Rate at 0.75 per cent and the stock of purchased assets at £435bn at each meeting.
“At the MPC’s most recent meeting, however, my decision to hold policy was more finely balanced.”
Carney explained that while the UK economy lost further momentum towards the end of 2019, data received in January just before the MPC’s meeting was more positive.
“Reflecting these positive developments, I continued to judge that it was appropriate to maintain policy,” he said.
However, Carney, who is set to be replaced by current FCA chief executive Andrew Bailey this month, issued a note of caution.
“To be clear, these are still early days, and it is less of a case of so far so good, than so far, good enough,” he continued.
“It will be important for the hard data on activity to follow through on the recent pickup in the surveys, and for domestic price inflation to strengthen.
“Though the global economy looks to be recovering, caution is warranted. Evidence of a pickup in growth is not yet widespread. And any one of the known risks, such as a renewal of trade tensions, could reverse recent progress.”
The outgoing governor noted that the MPC expectations did not include provision for any measures in the upcoming budget and added: “Further ahead, if the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the two per cent target.”
The Bank of England is also working in partnership with educational organisations to develop teaching materials on the economy and managing money that are suitable for primary school teachers and children.
It aims to launch this education resource, named Money and Me, in time for the 2020 summer term.
Positive economic data gives ‘room to delay’ base rate cut – Santander
An unexpected fall in inflation in January as well as comments made by three members of the BoE’s Monetary Policy Committee fuelled speculation that the next base rate move would likely be a reduction, with Jonathan Haskell and Michael Saunders voting for a cut consistently since November.
Saunders said the UK’s continued “sluggish” economic growth was one of the deciding factors towards a cut, however the recent PMI results suggest this may no longer be the case.
Frances Haque, Santander UK chief economist, said: “The January flash PMIs were stronger than expected with increases across manufacturing and services pushing them back into growth territory.
“Along with the positive labour market data released earlier this week and the more buoyant survey data from RICS, Deloitte and CBI, this will give the MPC members room to delay a cut until further data is released for the beginning of the year.”
Andy Scott, associate director at JCRA, added: “UK economic data this week has shown a better than expected recovery following the outcome of last month’s election, making a rate cut next week less likely.
He also said the data pointed to a “significant pick up” in UK business optimism and consumer confidence following the Conservative election win.
“We expect this is likely to mean that the Bank of England keeps rates on hold next week, preferring to wait and see whether the economy is starting to reverse the weakening growth trend,” he said.
Economic factors pointing to rate hold
Peter Izard, business development manager at Investec, said: “The latest PMI data along with the other forecast this week from the International Monetary Fund now leads to a less likely base rate cut.
“All the recent economic factors point to a positive trajectory for the economy and the Bank of England may wish to take a hold and wait stance in the months to come before making its next choice.”
The flash IHS Markit/CIPS composite PMI data suggested the growth seen in January was driven by a “sharp increase” in new work within the service sector as its business activity index rose to 52.9, up from 50.0 in December.
Furthermore, manufacturing output was at an eight-month high of 49.8, up from last month’s 47.5.
The report said reduced political uncertainty following the general election had a “positive impact” on business and consumer spending decisions at the start of the year.
Rate cut is not a dead cert – Oxford Economics
Economists at the Oxford University-based organisation have warned they are sceptical that the MPC will take the chance to cut rates at the end of the month.
They noted that the apparent shift by some MPC members towards looser policy was merely a reiteration of the committee’s earlier guidance.
And the organisation added that much of the data published in the last month “probably exaggerates the UK economy’s weakness”.
Financial markets are currently giving a 60 per cent chance of rate cut, up from six per cent on 13 January following the MPC member statements.
“But the market’s past success in predicting interest rate decisions hasn’t been fool proof. And there are other reasons to think that a rate cut this month is far from assured,” the economists said.
“For one thing, both governor Mark Carney and MPC member Silvana Tenreyro’s recent statements merely reiterated the MPC’s position from late last year.
“Gertjan Vlieghe has also made clear that fulfilling his dovish instincts would depend on the economic evidence that emerges in the wake of December’s general election.
“This qualification is important,” they added.
Economy more upbeat
It emphasised that the December General Election’s clear outcome should have eased the uncertainty, and limited economic evidence since then has been more upbeat.
“What’s more, the immediate pre-election period was not all gloom,” the report said.
“Employment saw a strong gain in the three months to November while the employment rate reached a record high
“At the same time, statistical incongruities suggest that the economy was not as soft in late-2019 as the headline numbers suggest,” it added.
As a result, the body is expecting a 6-3 vote to keep current policy on hold on 30 January, which would suggest only a slight strengthening in mood to issue a rate cut from the two previous 7-2 votes.
Markets expect further rate cut in 2020, potentially as early as January – Maddox
However, division remains between the members of the MPC with two members voting for a rate cut again this month – these same two policymakers voted for a rate cut at the previous meeting.
The MPC reiterates it “could respond in either direction to changes in the economic outlook in order to ensure a sustainable return of inflation to the two per cent target”.
The committee highlighted that uncertainty around Brexit may remain despite Boris Johnson’s election win guaranteeing the UK’s departure from the EU by 31 January, and in spite of his latest talks indicating a higher chance of a lighter exit deal than discussed with the EU before the elections.
The market remains cautious, estimating an 80 per cent probability of a rate cut by December 2020, with numerous banks forecasting a rate cut as early as January 2020.
Therefore, the upcoming UK economic data will take on even more importance to give clarity on the MPC’s rate direction.
The committee continued to monitor developments in the next stages of the Brexit process including UK’s future trading relationship with the EU and the recovery of global growth.
It has noted that if either global growth fails to stabilise, or Brexit uncertainty remains “entrenched”, then this will result in measures being undertaken via monetary policy.
In the scenario where the economy recovers in line with the MPC’s projections, then it is probable that policy will be tightened gradually.
The UK economy continued to stagnate over the August-October period as political uncertainty hit growth and global growth slowed down.
The committee reduced its Q4 projections to 0.1 per cent in the latest report, as a result of weakness in construction output during October 2019, and decreased business investment due to the general election.
The minutes indicate an inflation rate of 1.25 per cent in spring 2020, falling below the target rate of 2 per cent.
On a positive note, the MPC highlighted that household consumption increased by 0.4 per cent in Q3 2019, with retail volumes increasing at 0.2 per cent in the three months to October 2019.
It noted that most indicators were consistent, with a small rise in house prices in Q4. In addition, UK employment figures remained at record highs, signalling confidence in the job market.
Rate cuts in New Year
The markets still forecast the BoE base rate to be cut to 0.5 per cent in six months.
Other forecasted rates were unchanged, with the three-month LIBOR, two-year swap rate, three-year swap rate and five-year swap rates expected to remain at 75 bps for the next three years.
The ten-year swap rates are expected to stay at one per cent.
And Sterling has also wiped out all the gains made during the Conservative Party win on 12 December.
Base rate held but vote still split
Members Jonathan Haskel and Michael Saunders were the two who went against the vote, both proposing a cut to 0.5 per cent and is the second month in a row they have voted to lower the rate to 0.5 per cent.
This falls in line with comments Saunders made in September where he suggested that in the event the UK avoids a no-deal Brexit, the next base rate move would be down instead of up.
Monetary policy still uncertain
The BoE maintained its stance on which direction monetary policy could go in despite the Conservatives election victory.
The central bank noted it “could respond in either direction to changes in the economic outlook in order to ensure a sustainable return of inflation to the two per cent target”.
The committee said it would monitor how businesses and households responded to Brexit developments in order determine its next move.
Frances Haque, Santander UK chief economist, said: “The decision to hold rates was widely expected given the outcome of the general election increases the certainty of the UK leaving the EU at the end of January, reducing the risk of a continuing ‘slow puncture’ in the UK economy.
“The economic data published so far for the last quarter of this year indicates that growth will likely be weak or perhaps even negative and continues to depend on consumer spending to fuel growth.
She added: “However, with inflation well below the target rate and with the likelihood of reduced uncertainty, at least in the short term, the MPC is clearly standing by its cautious approach and will wait to see what type of momentum is carried into the beginning of 2020.”
Keystone Property Finance cuts fixed rates as swaps slide
The two-year fix was reduced by 10 basis points and starts from 2.89 per cent. The five-year fix was lowered by 25 basis points and starts from 2.99 per cent.
Its reversion rate was set at the Bank Base Rate (BBR) plus 4.99 per cent to run across all products.
The lender cancelled three-year fixed rates on standard and specialist mortgages.
And it withdrew cashback offers, that had been available to brokers, at 11.59pm on 2 September 2019.
“Swap rates have been lower than expected which has enabled us to offer brokers new products enabling clients to lock into lower rates while the market faces uncertainty over the next three months,” said Keystone Property Finance chief executive David Whittaker (pictured).
“We’re one of the first lenders to make the move from LIBOR to BBR following upcoming changes to the market. I expect many more to make this move over the next year or so. As always, we continue to listen to brokers’ feedback and where possible adjust to meet their requirements,” he said.
The reversion rate change follows the Financial Conduct Authority (FCA) decision to phase out the London Interbank Offered Rate (LIBOR) and replace it with Sterling Overnight Interbank Average Rate (SONIA) by end of 2021.