Average SVR at highest since 2009 – Moneyfacts
The Moneyfacts UK mortgage trends treasury report illustrated how average rates and product availability has shifted since the first of the recent Bank of England’s base rate rises.
The central bank raised rates for five successive months between December 2021 and June 2022, increasing the base rate from 0.15 to its current 1.25 per cent.
Moneyfacts said the average SVR for June reached 4.91 per cent following a rise of 0.13 per cent compared to last month’s equivalent rate, and of 0.51 per cent since December 2021.
It said the rise was the highest it had recorded since February 2009 when it was 4.94 per cent, surpassing the pre-pandemic average revert to rate of 4.90 per cent in March 2020.
For the eighth consecutive month the average overall two-year fixed rate has risen. At 3.25 per cent, the overall average two-year fixed rate has gone up by 0.22 per cent since last month, and by 0.91 per cent since December 2021. This is now the highest Moneyfacts has recorded since November 2014 at 3.31 per cent.
The overall five-year fixed rate average sits at 3.37 per cent following a month-on-month increase of 0.20 per cent and is the highest on our records in seven years; compared to June 2015 when it was 3.38 per cent or, 0.73 per cent higher than the equivalent rate in December 2021.
This means that the margin between the average two- and five-year fixed rates is now just 0.12 per cent – the smallest differential since February 2013.
The average two-year tracker rate has climbed to 2.54 per cent representing an increase of 0.27 per cent compared to last month, and a rise of 0.96 per cent when compared to the equivalent rate from December 2021 when it was 1.58 per cent. This is the highest recorded since September 2014 when the rate was 2.61 per cent
Eleanor Williams, finance expert at Moneyfacts, said: “Between the start of December 2021 and the beginning of June 2022, the Bank of England had raised the base rate by a total of 0.90 per cent. Since then, there have been fluctuations in mortgage product availability, this month dipping by 100 products to leave 4,987 deals for would-be borrowers to choose from.
“This is a fall of 328 when compared to December 2021, although the level of choice in the market remains up when compared year-on-year.
Williams said Moneyfacts data also showed product shelf-life had fallen back to the record low of 21 days this month, as providers continue to tweak their offerings and condense their ranges in light of an ever-changing economic background, which means that some deals may not be available for long before they are withdrawn or amended.
She added: “The overall two-year tracker rate rose again this month, now 2.54 per cent, which represents a rise of 0.96% per cent when compared to December 2021 and the highest it has been for almost eight years.
“Average rates for those with higher levels of equity or deposit have seen some of the steepest increases, which may come as a surprise as products at this end of the loan to value spectrum have traditionally been priced lower, in part due to the smaller risk of default they tend to pose for providers. ”
“At 65 per cent LTV the average two- and five-year fixed rates rose by 0.57 per cent and 0.47 per cent month-on-month to sit at 3.55 per cent and 3.77 per cent respectively – increases of 0.89 per cent and 0.90 per cent compared to the equivalent rates in December 2021, having risen roughly in line with the uplift in the Bank of England base rate over the same period.”
Williams said it was at 60 per cent LTV that Moneyfacts had recorded the largest rate increases in the two- and five-year averages since December 2021. “These equivalent rates rose to 2.91 per cent and 3.05 per cent this month, a significant 1.25 per cent and 1.12 per cent above where they sat in December 2021 when they were 1.66 per cent and 1.93 per cent respectively.”
“It’s interesting to note that it’s only the 90 per cent and 95 per cent LTV tiers (so often favoured by first-time buyers) where the average two- and five-year fixed rates remain lower now than they were this time last year, which may give hope to those looking to take a step onto the property ladder. While many consumers are battling the ongoing cost of living crisis though, it remains to be seen how any further changes in the market will impact prospective mortgage borrowers.
“The average SVR rate of 4.91 per cent is the highest recorded in over 13 years (February 2009 – 4.94 per cent), having risen by 0.51 per cent since December 2021.”
The difference between the average SVR and the average two-year fixed rate has shrunk to 1.66 per cent as lenders react to a changing economic landscape.
Top 10 most read mortgage broker stories this week – 17/06/2022
Elsewhere, broker moves were of interest such as Alexander Hall’s Dom Scott announcing his departure and the adviser who set up his own conveyancer panel out of frustration.
The upsides of the current mortgage market were discussed too, with The Mortgage Mum’s Sarah Tucker taking the opportunity to bring some positivity to the gloomy narrative and JLM’s Rory Joseph speaking about how affordability complications can bolster the advising process.
Co-op takes FOS to court over review of ‘mortgage prisoner’ case
The broker fed up with conveyancing setting up his own legal panel
Alexander Hall MD Dom Scott to depart – exclusive
Natwest increases rates; Virgin Money withdraws exclusive deals – round-up
A measured view not scaremongering needed with mortgages – The Mortgage Mum
Legal and General Mortgage Club Awards 2022 – in pictures
Affordability uncertainties are a mortgage advice boon – JLM
Hodge to temporarily close new business from Thursday
Lenders react to base rate change
Bank of England raises base rate to 1.25 per cent
Pepper reprices affordable housing, residential and BTL mortgages
The specialist lender said it had increased rates across its residential fixed rate range by an average of 0.64 per cent following recent rate rises.
Brokers who have an existing decision in principle on Pepper Money’s old range have seven days to submit a full mortgage application in order to secure the rate.
Paul Adams (pictured), sales director at Pepper Money, said: “It’s no secret that rates are increasing across the market, and may continue to rise.
“In this environment, it’s important that customers are able to apply for and secure existing rates quickly, before they increase in line with expectations. So now, perhaps more than ever before, service and turnaround are key considerations for brokers in choosing a lender. At Pepper Money, we aim to assess all documents and complete an underwriting assessment within 24 hours.”
He added: “This means we are able to provide certainty quickly. Our broker calls are answered on average in under a minute and we provide dedicated case owners from application to offer, ensuring consistency clarity, and the ability to speak directly to them during the application journey.
“With this approach, we are able to continue to provide competitive solutions for customers whose circumstances leave them overlooked by high street lenders and can be let down by the slow turnaround times that are currently impacting some specialist lenders.”
Bank of England raises base rate to 1.25 per cent
The bank’s nine-member Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase the base rate from 1 per cent, already the highest in 13 years, to 1.25 per cent. (Those members in the minority wanted to increase the rate by 0.5 percentage points, to 1.5 per cent.)
The increase marks the first time since January 2009 that the rate has surpassed one percent.
The rise was widely expected, and comes as the BoE tries to curb the soaring inflation that was spurred by the Coronavirus pandemic, a weakening GDP, the cost-of-living crisis and the global effects of Russia’s invasion of Ukraine. The central bank’s chief economist, Huw Pill, had warned last month that “more needs to be done” to curb inflation.
Inflation rose from seven per cent in March to nine per cent in April, the highest level in more than 40 years. The bank’s target level for inflation is two per cent.
Base rate rises are one of the mechanisms used by Governor Andrew Bailey and other policymakers at the BoE to try to keep inflation under control. Higher borrowing costs generally mean people spend less.
For homeowners on a fixed-rate mortgage, the increase won’t have an immediate impact on their mortgage. (Around three quarters of UK homeowners have a fixed-rate deal.)
But people with a variable rate mortgage are likely to feel the increase fairly soon. Higher rates will probably also trickle through for people planning to remortgage.
Data from Moneyfacts show that average two-year fixed rates from the top 10 lenders in June had tripled from the lows seen in October 2021. The average lowest two-year fixed rate in June, before this latest BoE increase, came to 2.71 per cent (up from 0.89 per cent) while the average five-year fixed rate rose to 2.78 per cent from 1.05 per cent.
‘Good cop, bad cop’
Laith Khalaf, head of investment analysis, AJ Bell, said: “The Treasury and the Bank of England are effectively playing the role of good cop, bad cop with UK consumers. On the one hand, the chancellor is giving away billions of pounds in helicopter money to help ease the cost-of-living crisis, while at the same time the Bank of England is cranking up the pressure on household finances by increasing borrowing costs.
“Consumers probably won’t be best pleased to find that some of the fiscal giveaways they have been handed by the chancellor are going to be gobbled up by higher interest rates. But if the Bank had failed to take any action, the pound would have come under further pressure, which adds to the cost-of-living crisis by pushing up the price of commodities priced in dollars, especially fuel. It would also increase the chance that inflation becomes embedded in the system and lasts for longer.
“Ultimately, the risk is that the combination of the energy price shock and rising interest rates leaves the UK in recession, having only just climbed back to pre-pandemic levels of economic activity.”
Richard Pike, Phoebus Software sales and marketing director, said today’s increase “is one that most people were expecting and, hopefully, preparing for. The thing to understand is that this is a global problem, just yesterday the US increased its interest rates by the biggest percentage in 30 years: we are not alone in having to deal with spiraling inflation. Covid and the war in Ukraine have both taken a huge toll and the knock-on effect will be long lasting.”
“It is encouraging therefore”, he said, “to read that the FCA has today reminded lenders of their responsibility to provide help to customers struggling with payments. However, this does of course mean that lenders will need the resources to identify vulnerable borrowers at an early stage to be able to offer the help that is required.”
When will it end?
Adrian Anderson, director of property finance specialists at Anderson Harris, had a question of his own.
“Inflation is running red hot and this interest rate rise means higher borrowing costs for mortgages, credit cards and other loans. The question I keep on being asked is ‘When will these rate hikes stop?’ and I don’t think the MPC know the answer”, he said. “The Bank of England are playing catch up as at the beginning of the inflation crisis we were told this is a temporary issue due to supply chain problems and this is clearly not the case.”
Anderson said his firm was “encouraging homeowners to remortgage as early as they can” and was contacting clients six or more months in advance “rather than the usual three to four months before a rate renewal due date.”
Rocketing inflation will induce steeper base rate rises – Maddox
The committee has begun to plan the process of selling UK government bonds, currently held in the Asset Purchase Facility, later this year.
Global inflationary pressures have intensified due to the Russian invasion of Ukraine, with energy price increases at the core. Pressure on supply chains is also being felt due to the war, as Ukraine and Russia are both producers of key imports such as metals and fertilisers. Supply chain pressures are also being felt due the Covid-19 resurgence in China, with their Covid Zero policy meaning many cities have been in lockdown since the end of March.
Inflation continues to rise, reaching 6.1 per cent in February and increasing to seven per cent in March, higher than expected in the February report. Inflation is now expected to reach over nine per cent in Q2, and to average just over 10 per cent at its expected peak in Q4 of this year. This is largely due to the Ofgem utility price cap increase in April, with a further increase of up to 30 per cent expected in the October review.
Looking further ahead, inflation is expected to decrease materially once energy prices stop rising, however the inflation target of two per cent is not expected to be met for over two years.
UK GDP growth has slowed and was 0.1 per cent in February with consumer confidence falling due to the squeeze on household disposable incomes.
The latest Office for National Statistics (ONS) figures continue to show unemployment decreasing, down to 3.8 per cent in the three months to February, however the number of job vacancies in January to March 2022 reached a record high of 1.288 million.
Although we continue to see unemployment decreasing in the near term, it is expected to rise to 5.5 per cent in three years’ time with slower economic growth. Regular pay (not including bonuses) increased by four per cent from December to February, however once adjusted for inflation sat at -1 per cent on the year, showing inflation is causing an overall reduction in regular pay on households.
||Forecast in rates
||One month’s time
||Three month’s time
||Six month’s time
||12 month’s time
||Two year’s time
||Three year’s time
|Bank of England Base Rate*
|Two-year fixed rate**
|Three-year fixed rate**
|Five-year fixed rate**
|10-year fixed rate**
* Using OIS Curve [rounded to two decimal points]
**Based on the swap curve
Due to the continued rise in inflation, markets are expecting further steep increases in the Bank of England base rate with large increases throughout the rest of this year, exceeding two per cent within six months. Markets also expect that the bank rate will increase to over 2.5 per cent within the next 12 months.
Market participants also expect the two-year swap rate to increase further over the next three months and to then flatten out, with the three-year swap rate following the same path.
The five and 10-year swap rates have slowly been increasing, but are expected to remain relatively flat over the next 12 months, then to drop slightly in the next two to three years.
UK securitisation market
Issuances returned into the primary market this month, after an eight-week break due to the geopolitical climate, with four transactions pricings; one from a prime lender and the other three from non-conforming and buy-to-let shelves.
Currently, in 2022, circa £14bn of UK residential mortgage-backed securities (RMBS) paper have been placed into the market compared to circa £7.6bn this time last year, and around £6.3bn in 2020.
Base rate rises to one per cent
Members of the Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase the base rate from 0.75 per cent to one per cent.
Jonathan Haskel, Catherine Mann and Michael Saunders all voted to raise it to 1.25 per cent.
The minutes of the meeting said the members who voted for a further increase “put more weight” on continued strength in demand as well as a firm embedding of trends in pay growth, firms’ pricing strategies and inflation expectations.
It said they suggested that “faster policy tightening now would help to bring inflation back to the target sustainably in the medium term, and reduce risks of a more extended and costly tightening cycle later”.
The rate hike was widely predicted, and comes as the bank aims to curb soaring inflation amid the ongoing pandemic, the cost-of-living crisis and the global effects of the Ukrainian-Russian war.
Chancellor Rishi Sunak and prime minister Boris Johnson both indicated that a rise to the base rate was coming, separately warning that mortgage costs would increase for those on variable rates.
This takes the bank rate to its highest level since February 2009 when it fell from 1.5 per cent to one per cent. In January 2009, the rate was 1.5 per cent before falling to one per cent in February and then 0.5 per cent in March 2009.
This is now the fourth increase from the historic low rate of 0.1 per cent in December 2021. It rose to 0.25 per cent before climbing to 0.5 per cent in February and then 0.75 per cent in March 2022.
Market forecasters generally expect the base rate to rise even further. In March, revised forecasts suggested it could reach two per cent by the end of the year. However, last week Sunak told the cabinet that interest rates could reach 2.5 per cent over the next 12 months, adding that financial markets had already priced the increase in.
However, economic consultancy Capital Economics has revised its forecast, assessing that with inflation staying higher for longer, and with the labour market remaining tight into 2023, the BoE will raise the base rate to three per cent next year.
During the meeting, the MPC discussed the risks around the global inflation outlook, and the implications for growth. It noted a risk that energy prices, particularly gas prices, would rise for example if flows of Russian gas to large European countries slowed significantly.
It also said UK bank lending rates on mortgages with loan to value (LTV) ratios at or below 75 per cent had risen further since the committee’s March decision. This was consistent with a response to the increases in “risk-free rates since the autumn of 2021”.
The MPC said further increases in risk-free rates, which are alternatives to LIBOR, that had occurred since its last meeting would be expected to feed through to mortgage rates in due course.
Inflation to peak, GDP to slow
In its central projection, the committee said CPI inflation is expected to rise further over the remainder of the year, to just over nine per cent in Q2 and averaging slightly over 10 per cent at its peak in 2022 Q4. This reflects higher household energy prices following the large rise in the Ofgem price cap in April, and a projected additional large increase in October.
Inflation is projected to fall to just above two per cent in two years’ time as the influence of external factors wane. This will then drop to 1.3 per cent in three years, putting it below the MPC’s two per cent target.
UK GDP is estimated to have risen by 0.9 per cent in Q1 this year, which is stronger than the MPC predicted in its February report. However, this is expected to slow later in the year due to sharp rises in global energy and tradable goods prices hitting most households and UK companies’ profit margins.
Total real household disposable income was projected to fall by 1.75 per cent in 2022, a greater fall than in the February projection.
The unemployment rate is expected to slow in the near-term, following a figure of 3.8 per cent in the three months to February. The MPC said it would then rise to 5.5 per cent in three years’ time due the “sharp slowdown” in demand growth.
Mortgage flexibility gives borrowers certainty – Cox
Without the ability to be flexible within our businesses, with individual clients and cases and everything else, we would be scuppered far more times than would be acceptable.
However, one of the key uses of that flexibility is the ability to provide certainty, and there is perhaps no better example of that at present than with the interest rate environment we are part of.
For over a decade, interest rates have tended to track within a very low range, below one per cent, and while the funding of mortgages is often not predicated on Bank Base Rate (BBR), but the swap/capital markets, those rates have also been incredibly low.
It has caused the creation of a borrower demographic who is a) not used to rates being raised, and b) now worrying about where those rates eventually end up.
For all of us who remember the pre-Credit Crunch days of BBR at five per cent plus, and product rates within a similar range, there will be those who do not. Part of the job for advisers in particular, but also the entire industry, is to provide context and education around current rate levels, where they might be heading, and what this might mean.
Product rates differ to BBR, but the trend does appear to be upwards for both, and therefore borrowers will need to be advised on what is, and isn’t, achievable.
From what I’ve read, the markets believe BBR will have hit two per cent by the end of 2023, and there’s an acceptance that after many years that very low range is probably behind us.
In our space, landlord borrowers know that product rates are a moveable feast, but you will likely have sensed a recent move northwards. In all manner of sectors, the ultra-low rates that were available in October and November are long gone.
However, because we have the flexibility of a highly competitive mortgage market – particularly in the buy-to-let space – there is action that can be taken. With that flexibility you can deliver certainty.
Reassurance with longer fixes
Over the course of the last six to eight years, there has been a growth in popularity of longer-term buy-to-let fixes, particularly in terms of securing greater loan levels but also around payment certainty. It’s likely that market demand will go even further in that direction now.
Some lenders have launched seven-year fixes for landlords, because borrowers who can fix for such a term are not going to have to worry about price increases on their mortgage over a period when the rate environment appears to be heading in that direction.
Also, if you can fix your mortgage, you know that monthly cost at a time when other costs are not so certain.
Houses in multiple occupancy (HMO) landlords who include utility bills in their monthly rents are probably trying to work out how to factor that into the equation going forward.
There is therefore much to be said for the certainty provided by a long-term fix, especially when there are positives around, such as strong tenant demand, increased rental yields, and the opportunity to add to portfolios. Why not bake mortgage certainty in and secure that position of strength?
Virgin Money, Clydesdale and Yorkshire Bank up variable rates
On the Virgin Money said the residential standard variable rate (SVR) will go up from 4.74 per cent to 4.99 per cent, whilst its BTL variable rate has increased from 4.94 per cent to 5.19 per cent.
The lender’s loyalty rate, for eligible residential customers who have held a mortgage on a property for seven years or more, has also risen from 4.49 per cent to 4.74 per cent.
The new rates will come into effect for new customers from 5 April and existing customers from 1 May.
Clydesdale and Yorkshire Bank’s residential SVR has increased from 4.74 per cent to 4.99 per cent, whilst its residential offset variable rate has risen from 4.95 per cent to 5.2 per cent.
The bank’s BTL revert rate, offset variable investment housing loan rate has gone from 5.35 per cent to 5.6 per cent.
The updated rates will come into force for new customers from 1 April and for existing customers from their next payment date after 1 April.
Fine tuning of BTL products continue as lenders react to rate rises – Armstrong
We are still seeing plenty of sensible levels of repricing taking place throughout the sector. This is hardly headline-grabbing news but there are still plenty of positive moves being made, so let’s focus on these.
In a further addition to the seven-year fixed rate arena, West One Loans launched a series of new products to its buy-to-let product range, including seven-year fixed payrate products, both standard and specialist, and a new lifetime tracker range, also available for standard and specialist properties.
All of the products are available from 65 per cent up to 75 per cent loan to value (LTV) and the standard seven-year product is priced from 3.44 per cent with a 1.5 per cent fee. The specialist range is designed to finance more complex transactions such as homes in multiple occupancy (HMOs) and multi-unit freehold blocks (MUFBs). The seven-year product is priced from 3.64 per cent with a two per cent fee.
Foundation Home Loans expanded its green buy-to-let product range to specialist property types including short-term lets and standard HMOs (up to six occupants).
The ABC+ green HMO product has rates starting from 3.44 per cent for 75 per cent LTV on a F2 five-year fixed rate, with a 0.75 per cent fee. The ABC+ green short-term let product has rates starting from 3.94 per cent for 75 per cent LTV, again on an F2 five-year fixed rate, also with a 0.75 per cent fee. Both allow a maximum loan size of £1m. Rates are tiered depending on the EPC rating of the property with those at an A level securing the most competitive rate.
The specialist lender has also made changes to its fee-assisted buy-to-let product range including fee cuts, the introduction of new 80 per cent LTV products, and new limited edition specialist fee-assisted products.
Habito announced a string of enhancements to its buy-to-let range, with new longer-term fixed rates at seven and 10 years, and a maximum LTV of 85 per cent. Its newly launched 85 per cent LTV products are available across the full range of terms for properties with an EPC rating of A to C and where the property value is worth a minimum of £100,000. The lender has also increased its maximum loan size from £1m to £2m to help further support landlords in London and the South East.
Coventry for Intermediaries added mortgage products across its owner-occupier, offset and buy-to-let mortgage ranges, as well as two tracker mortgages.
Bolstered specialist underwriting
Finally, from a service perspective, Landbay has created a portfolio underwriting team specifically to cater for professional landlords who own rental properties in a portfolio of between £2m and £15m. The team of five underwriters are all experienced in dealing with large and complex buy-to-let cases.
As previously stated, this is certainly not an all-encompassing selection of the product-related moves being made by lenders across the buy-to-let sector. Repricing has been a daily occurrence in recent times but these progressive product moves are – fingers crossed – at least more likely to be still around by the time you get around to reading this.
Top 10 most read mortgage broker stories this week – 18/03/2022
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