Intermediary-exclusive purchase and remortgage products will see rate reductions of up to 16 base points on two-year deals and up to 12 base points on selected five-year deals.
Two-year fixed rate purchase and remortgage products at 70 per cent loan to value (LTV) will see rates reduced to 1.24 per cent. And for 75 per cent LTV the rate will reduce to 1.26 per cent. Both are down from 1.4 per cent.
Five-year fixed rate purchase deals at 60 per cent LTV will drop from 1.57 per cent to 1.54 per cent; 70 per cent LTV and 75 per cent LTV will reduce from 1.61 per cent to 1.59 per cent; and 80 per cent LTV will decrease from 1.91 per cent to 1.79 per cent.
Five-year fixed rate remortgage products at 70 per cent and 75 per cent LTV will decrease from 1.61 per cent to 1.59 per cent. And at 80 per cent LTV the rate will reduce from 1.91 per cent to 1.79 per cent.
Mark Bullard, head of sales at NatWest Intermediary Solutions (pictured), said: “These changes underline our commitment to the intermediary market. I’m pleased to make rate reductions across a wide variety of LTV bands and two- and five-year deals.”
As borrowers may find themselves ineligible for a two-year fixed mortgage, it’s not too surprising that the longer product may be suggested as a more suitable option to get them a mortgage while also giving them security for a lengthier term.
So this week Mortgage Solutions is asking are you recommending more five-year fixes over two-year fixes based on affordability calculations?
Are you recommending more five-year fixes over two-year fixes based on affordability?
The falls have come as swap rates for longer terms are now less than for two years, and perhaps signal that further falls in mortgage interest rates could come.
Data from financial market data service Ice, which monitors the swap markets for lending rates between banks, revealed the unusual reversal in lending rates.
At the close of business yesterday, two-year swap rates were at 0.664, compared to 0.624 for three years, 0.607 for four years and 0.596 for five years.
Perhaps more surprising is that 10-year lending rates were also cheaper than their two-year counterparts at 0.627.
This continued softening of swap rates may also explain why more longer-term mortgages of 10 or even 15 years are being launched.
Mortgage rates down
Moneyfacts revealed that this slide in swap rates had been reflected by falls in the average five-year fixed rate mortgage to its lowest level in 2019 at 2.794 per cent.
Just a month ago this was 2.852 per cent while on 1 January it was at 2.935 per cent – the highest mark of the calendar year so far.
The Moneyfacts data also showed the average two-year fixed rate had dipped over the last month from 2.494 per cent on 16 July, to 2.472 at the end of the week.
While this drop is notable, in contrast to five-year deals, two-year fixes were cheaper earlier in the year and this is not such a long-pronounced decline in rates.
According to the latest figures from Moneyfacts, the average two-year fixed rate has fallen by 0.03 per cent from 2.52 per cent in January 2019 to 2.49 per cent in June.
Meanwhile the average five-year fixed rate decreased by 0.09 per cent from 2.94 per cent to 2.85 per cent over the same period, .
In contrast, the gap between the average five-year fix and the typical 10-year fix has increased by 0.04 per cent.
This is despite the 10-year average rate falling by 0.05 per cent from 3.05 per cent in January 2019 to 3 per cent in June, the lowest recorded average 10-year fixed rate since February 2018.
Darren Cook from Moneyfacts said that with the difference between the average two and five-year fixed rate at a seven-year low, the difference in the monthly repayment between these fixed terms will also be narrow.
He added: “For example, on a repayment mortgage advance of £200,000 over a 25-year term at the average fixed rate for each respective term would see the average two-year repayment this month stand at £896.23, while the five-year average repayment amount would be £932.89, totalling a difference of £36.66 per month.
“Using the same mortgage criteria, the difference between the monthly repayments of the average five-year and 10-year mortgage rate at £948.42, this monthly difference is just £15.53.”
Cook noted that current mortgage rates appear to be competitive across the board, allowing borrowers the flexibility to choose whether to fix repayments for either the short, medium or longer-term initial rate periods.
“However, borrowers must also remember to consider other factors, such as potentially greater fee expenses if they opt for a shorter initial fixed payment term and have to switch deals more frequently or the possible implication of mortgage tie-in costs if they wish to shop elsewhere during a longer initial rate period,” he added.
The product is available as part of Foundation’s Tier 1 product range to those limited company borrowers with a near-perfect credit record.
It can be accessed by first-time landlords, non-portfolio and portfolio landlords.
The five-year fix is priced at 3.35 per cent up to 75 per cent loan to value (LTV) until 31 July 2024, with a maximum loan available up to £1m.
The product also comes with a £2,495 product fee with a rental income calculation of 125 per cent at pay rate.
There is no maximum age limit for limited company applicants and it is available through Foundation’s distributor network including all mortgage clubs, networks and key packagers.
The specialist lender said this launch comes off the back of an increase in its limited company BTL business and a focus on broadening the reach of its proposition, particularly on portfolio landlords.
Jeff Knight, director of marketing at Foundation Home Loans (pictured), said research conducted by Foundation and BVA BDRC showed the appetite and ambition, particularly of portfolio landlords, to purchase more properties via limited companies.
According to this research, over a half of all landlords intend to buy their next BTL property through a limited company vehicle, rising to seven in 10 for landlords with over 11 properties in a portfolio.
Knight said: “The ongoing move towards greater levels of limited company buy-to-let business is certainly one we are seeing at Foundation.
“We therefore want to ensure advisers have access to products which will suit the growing number of borrowers seeking purchase and remortgage finance through such vehicles.
“This 3.35% five-year fix fits neatly into our Tier 1 range and allows us to broaden our offering for those landlord clients seeking longer-term stability for their payments.”
While this provides peace of mind for the borrower, it presents different challenges for brokers, so what can brokers do to maintain an ongoing client relationship?
Typically, shorter-term fixes mean more regular client contact, and a regular flow of repeat business.
But if clients are inactive for lengthy periods of time, how can brokers ensure their pipeline remains steady without investing huge amounts in marketing and new business drives?
While most brokers will have some sort of customer relationship management (CRM) system, clearly a contact strategy of 90 days before the end of a five-year term will not be much help in this situation.
It’s time for a re-think on how we advise clients on an ongoing basis, not just when we know they need something.
Human way of connecting
Engaging clients longer-term requires planning and creative thinking.
Too much contact can be seen as irritating, too little contact and you won’t be front of mind when it comes to their next financial decision.
Brokers are also increasingly competing with online alternatives. Targeted adverts and simple online applications, which mean new products can be researched and purchased without leaving the sofa, all gain customer attention.
But while technology is a great enabler, it cannot replace face-to-face support and guidance.
Brokers need to look at how they can provide real customer service, whether that’s emailing a quarterly newsletter with insight into the financial market, sharing details of products which you think are relevant to specific clients or simply remembering and celebrating birthdays and home-buying anniversaries.
These opportunities to make contact are a simple and very human way of showing a client you value them.
Annual review
You may also want to implement an annual financial review, giving clients a chance to reassess their circumstances and ensure their current products are still fit for purpose.
People’s lives change all the time and a fixed rate of five or 10 years is an incredibly long time. Children will grow up, careers may shift direction, parents will age and may require additional care, added to the fact the market is constantly evolving.
Offering time for a wellbeing check-up ensures you keep abreast of your clients’ current needs and forecasting for their future as well as demonstrating added value which is crucial for referrals and positive reviews.
It costs five times as much to attract a new customer than to keep an existing one, so it’s logical that once you’ve got a customer through the door, you need to hold on to them.
Considering what you can do that a robot cannot is a great mindset to start with.
Devising a sustainable strategy to customer retention that is realistic to implement may not be the most exciting job on your to do list, but once in place, it will ensure your business flourishes, regardless of what the most popular length mortgage term might be.
As part of the partnership, Buy to Let Club members will have access to a five-year fixed semi-exclusive product from Paragon.
Available up to 80% loan to value (LTV) at an initial rate of 3.80%, the product is available for purchase and remortgage on both single self-contained properties and houses in multiple occupation (HMOs) and multi-unit blocks (MUBs).
It benefits from free valuations and £400 cashback. Members can access Paragon’s full product range by using Buy to Let Club as a payment route.
Founder and chief executive of Buy to Let Club, Ying Tan (pictured), said: “We are delighted that Paragon has chosen to launch with Buy to Let Club as it expands into the mortgage club sector.
“Our knowledge and experience within specialist lending coupled with the direct access we will have to Paragon’s underwriting team make this hugely beneficial for our members.
“I am certain that we will see a great deal of interest in Paragon’s portfolio, expat and holiday let products in particular.”
Moray Hulme, head of mortgage sales at Paragon, added: “Over the last couple of years, there’s been a step up in demand for specialist mortgage products from landlords with large scale, complex property portfolios and Paragon’s product range is carefully calibrated to meet their needs.”
Around 84% of BTL deals were five-year fixes in Q4 2018, up from 70% in the previous three months, according to Mortgages for Business’ Buy to Let Index.
The broker also argued that lenders were using percentage-based fees rather than a flat fee to rescue margins lost through competitive pricing.
In total, 97% of landlords now choose a fixed rate. The popularity of five-year fixed rates is likely linked to less stringent tests and the promise of a greater degree of stability in the current, uncertain economic climate.
The report found that the five-year fixed rates slightly decreased to 3.58% in Q4 2018 from 3.67% in Q3 2018. On the other hand, three- and two-year fixed rates stood steady in Q4 2018 compared to the previous three months, at 3.33% and 3.08% respectively.
Steve Olejnik, managing director at Mortgages for Business (pictured), said that for landlords, the preference for five-year rates was both a protective measure and an opportunity to maximise borrowing.
However, he noted from a market perspective, it will reduce the volume of remortgaging over the next few years.
He added: “Both lenders and brokers need to take this into account when projecting business growth.”
Figures from UK Finance obtained exclusively by Mortgage Solutions last month suggest the trade body is expecting this drop in volumes to start hitting next year.
Ltd company majority
However, more than half of all newly submitted buy-to-let applications are from landlords using limited companies, up from 44% in Q3 2018, indicating the continued shift away from borrowing personally.
By value, these applications accounted for 51% of all requested borrowing, up from 39% in the previous quarter. More than half of the BTL lenders tracked now offer products to limited companies.
Olejnik said: “I expect the uptick in the use of limited companies to continue as landlords adjust their investment strategies to cope with the new tax environment and underwriting guidelines for lenders from the Prudential Regulatory Authority (PRA).”
Lender arrangement fees rise
The way lenders charge borrowers has also changed. Nearly half of all products had a percentage-based arrangement fee attached, up from 42% at the beginning of 2018.
Olejnik explained that loans for specialist scenarios tend to be higher and so lenders are able to clawback some of the margins they have lost through competitive pricing by applying a percentage-based fee rather than a flat fee.
He added: “Almost always, there is no incentive for lenders to offer products without fees for more complex borrowing scenarios.”
The average flat fee rose too, from £1,423 a year ago to £1,506, the first time the figure has risen above £1,500 since Q1 2016.
At that time, the average flat fee rate stood at £1,556 when there was a rush of buy to let applications as landlords raced to complete transactions ahead of the introduction of a stamp duty surcharge on purchases of BTL property.
Two-year fixed rates saw a 24% reduction in costs, while a five and three-year fixed product came down in costs by 21 and 13% respectively, according to Mortgage Brain’s latest product data analysis.
The cost of a 90% LTV two-year fixed is now eight per cent lower than it was this time last year.
And 90% LTV five and three-year fixed rates cost two per cent less than they did at the beginning of January 2018.
The price of a two, three and five year 60% LTV fixed rate product is also down by up to 10% over the same period.
In monetary terms, the eight per cent reduction in cost over the past 12 months equates to an annual saving of £612 on a £150k mortgage.
Compared to five years ago, borrowers face a potential annual saving of £2,214 for the 90% two-year fixed, and £2,052 and £1,152 for the five and three-year products, respectively.
However, Mortgage Brain’s short-term analysis showed little movement with mortgage costs for the majority of mainstream products since the beginning of October 2018.
Of those reviewed, only a two year tracker saw a movement in cost with a 60% LTV product down by 0.5% and a 70% and 80% LTV product up by the same amount.
Mark Lofthouse, CEO of Mortgage Brain (pictured), said that while there is little to get excited about in terms of rate and cost movement over the past three months, the UK mortgage market has shown some big improvements over the past few years.
He added: “With mortgage costs down by up to 24% compared to January 2013, there are still plenty of good deals out there for first-time buyers and those looking to remortgage. Last year saw costs and rates fluctuate, however, and I expect more of the same for 2019.”
The lender introduced two, five and ten-year fixed products up to 85% loan to value (LTV).
The two-year fixed product stands at 1.99%, the lowest rate offset product without a fee, at 50% LTV.
The extended range also includes a five-year fixed product at 2.29% and a ten-year fixed product standing at 2.59%, with 85% and 75% LTV respectively. Both products are offered with a £999 product fee.
Kevin Purvey, director of intermediaries (pictured), said that these fee-free products are ideal for clients looking to keep their initial costs low.
He added: “An offset isn’t just for big savers – a small amount saved regularly can make a big difference.”
