In its Trends in the Economy And Lending (TEAL) report, UK Finance said there were 1.3 million borrowers on fixed rate deals set to end this year.
Taking into account that many of those borrowers would be able to fix to another deal, the combined pressures from cost of living and refinancing would still result in a typical reduction in free income of around seven per cent.
UK Finance also found that, on average, the combined impact of inflation, income and tax changes would knock around three per cent off of borrowers’ “wiggle room”.
Wiggle room is defined by UK Finance as the proportion of net income left after subtracting initial mortgage payments, basic household expenditure and credit commitments.
Wiggle room is also used in the income-affordability test undertaken by mortgage lenders as part of the FCA’s responsible lending rules, although it excludes any interest rate stress test.
James Tatch, principal, analytics at UK Finance, said that three quarters of mortgage customers, including almost all recent borrowers, are on fixed rates and so will see no increase in payments in response to bank rate increases through 2022.
But he warned that of those who were coming off fixed rates this year, there “would likely be some at the margins, and particularly among lower-income brackets, who would no longer pass the same affordability test as they did last year”.
“Overall CPI inflation hit 9.1 per cent in May, driven by the persistent supply chain issues that began with Covid-19, and the global economic fallout of the ongoing crisis in Ukraine. The Bank of England now predicts inflation will peak this year at over 10 per cent. Responding to escalating CPI, the Bank has raised rates four times in the first six months of 2022.”
Tatch said: “While this is not unprecedented – RPI was over 12 per cent in 1981, and almost 25 per cent in 1974 – two generations of current mortgage customers were not yet born at the time and have had no experience of a UK in which inflation was a cause for widespread national or personal concern.”
Tatch said the issue for households in 2022 was that wage growth was not expected to keep up with price growth in the way it during the two previous periods of high inflation. “While this avoids an economy-wide wage-price spiral, it also means that households are set to see a significant contraction in real incomes.”
Most will have wiggle room
UK Finance said most of those coming off a fixed rate would be able to afford a three per cent average decrease in their wiggle room by absorbing these increased costs and still afford their mortgage.
This is helped by the fact that “virtually all new mortgages are currently fixed rate deals, and over half of these are fixed for five years or more. This means that those recent borrowers will not see increases in their mortgage payments as other costs rise through this year”.
Five and two-year fixed rate deals maturing this year account for around two thirds of those fixed rates maturing in 2022.
For 2017 originations, those coming off five-year fixed deals, the typical cost-of-living impact is broadly neutral. This is because income growth over the period since borrowing has cancelled out cumulative price growth. UK Finance added that there would still be a decrease from refinancing costs of around 4.3. per cent, leaving the average borrower with around 28 per cent of their net income in wiggle room.
For 2020 originations, the decreases in wiggle room are greater, with a 2.6 per cent fall due to cost-of-living effects and seven per cent from refinancing. However, borrowers in 2020 had, on average, significantly greater wiggle room at origination compared with the 2017 cohort, meaning that their typical position after refinancing in 2022 is broadly the same at 28 per cent.
UK Finance said although the typical borrower would still have over a quarter of their disposable income left over, its analysis shows that these effects are not evenly distributed and some, including those in lower-income brackets, would see a proportionately greater decrease.
“We can see that those at the lower end of the income scale are the most impacted, seeing a 10 per cent overall reduction in their wiggle room to around 18 per cent on average.”
“Our modelling suggests around nine per cent of all borrowers with maturing fixed rate deals this year would be left with less than 10 per cent wiggle room after refinancing, and a further 20 per cent would have between 10 and 20 per cent wiggle room.”
One difference between 2022 and the two earlier comparative periods was the availability of longer-term fixed rate deals at similar or lower rates than shorter-term products.
Longer term availability
The report stated: “According to Moneyfacts, at the time of writing the average 10-year fixed rate for a customer with a 75 per cent loan to value was 3.64 per cent, compared to 3.78 for a two-year fix and 3.85 for a five-year fix. So, customers looking to fix what is usually their largest monthly outgoing for longer, through this period of rising wider cost pressures, are able to do so at negligible additional cost, or may even be able to save money by doing so.”
UK Finance believes most borrowers will be able to weather the cost-of-living crisis: “While mortgage customers are not immune from these pressures, the industry will continue to offer competitively-priced finance to help their customers best cope. Further, the responsible lending rules in place since 2014 ensure that, with a built-in buffer against such shocks at origination, the vast majority of customers are able to refinance affordably this year, whether internally or on the open market.”
“Although our analysis suggests most will be able to cope, we do expect some upwards pressure on mortgage arrears as these pressures tighten, and this is likely to be concentrated amongst lower-income households.
“As always, we encourage any customers concerned about their ability to maintain payments to contact their lender at the earliest opportunity. The industry stands ready to help with a range of forbearance tools that can be tailored to best suit customers’ individual circumstances.”
TSB’s five-year fixed first-time buyer (FTB) and house purchase products at zero to 75 per cent loan to value (LTV) have been increased by 0.35 per cent.
On its two and five-year fixed remortgage deals, rate have been increased by up to 0.60 per cent and on two and five-year fixed shared equity remortgage rates haven increased by up to 1.25 per cent.
Natwest raises new business pricing
Natwest said it had increased rates across its new business residential range.
Its two-year fixed rate purchase product at 60 per cent LTV with a £995 product fee will increase by 0.43 per cent to 3.25 per cent.
A two year fixed-rate 85 per cent LTV with no product fee will increase by 0.35 per cent to 3.54 per cent. At 90 per cent LTV, with a £995 product fee, the two-year fixed rate will rise from 2.96 per cent to 3.31 per cent.
A two-year fixed-rate remortgage at 75 per cent LTV, increases by 0.37 per cent to 3.21 per cent. This mortgage has a £995 product fee.
At 90 per cent LTV, the rate on the fee-free two-year fixed remortgage will rise by 0.4 per cent to 3.69 per cent. With a £995 fee, the rate on a equivalent product will increase by 0.26 per cent to 3.34 per cent.
The rate on the five-year fixed purchase product at 60 per cent LTV with no fee will increase by 0.33 per cent to 3.49 per cent and at 75 per cent LTV, the £995 fee-paying product will see a 0.42 per cent rate increase to 3.31 per cent.
A 90 per cent LTV purchase product with no fee will see its rate increase by 0.35 per cent to 3.60 per cent.
The fee-free five-year fixed remortgage at 75 per cent LTV will increase by 0.45 per cent to 3.59 per cent. At 85 per cent LTV, the rate will increase by 0.46 per cent to 3.45 per cent.
Rates on two and five-year fixed purchase deals at 95 per cent LTV, with £750 cashback, will increase by 0.45 per cent.
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.
Natwest has increased rates on its two and five-year fixed-rate residential and buy to let (BTL) products.
Changes include a 0.18 per cent increase to its two-year fix purchase product with a £995 fee at 60 per cent loan to value (LTV), where the rate has risen from 2.64 per cent to 2.82 per cent.
At 85 per cent LTV, the two-year fixed purchase deal with no fee will increase from 3.01 per cent to 3.19 per cent, and at 90 per cent LTV the equivalent will rise by 0.2 per cent to 3.24 per cent.
Changes to Natwest’s five-year fixed rate purchase products include the 60 per cent LTV with no fee which increases by 0.19 per cent to 3.16 per cent, and on 90 per cent LTV, also with no product fee, a rise from 3.09 per cent to 3.25 per cent.
BTL products where rates have increased include Natwest’s two-year fixed rate purchase 60 per cent LTV deal with a £995 fee, which was 2.69 per cent and is now 2.87 per cent. The two-year fix at 75 per cent LTV with a £1,495 fee has increased by 0.19 per cent to 2.63 per cent.
On its five-year fixed BTL purchase product at 75 per cent LTV, with a fee of £1,495, the rate has increased by 0.19 per cent to 2.78 per cent.
Rate changes on its green mortgages include two-year fixed purchase product at 85 per cent LTV, which increases by 0.2 per cent to 2.85 per cent. This has a product fee of £995.
The two-year fixed green remortgage at 75 per cent LTV with a £995 fee has seen the rate has increase by 0.27 per cent to 2.74 per cent.
Virgin Money
Virgin Money said all exclusive fixed rates will be withdrawn at 8pm on 15 June.
The lender has also increased all fixed term fee-saver products by 0.20 per cent, with the exception of its 65 per cent LTV two, three and five-year fixed fee-saver deals which will increase by 0.10 per cent.
Nationwide said the new rates would be effective from Friday 10 June.
For first-time buyers, rates will be increased by between 0.15 per cent and 0.20 per cent, while for those looking to move home, rates will be increased by 0.20 per cent. For those looking to remortgage, rates will be increased by between 0.05 per cent and 0.30 per cent.
Switcher and further advance rates will be increased by between 0.05 per cent and 0.16 per cent, while shared equity rates and green additional borrowing rates will be increased by 0.20 per cent.
Changes include a 10-year-fixed rate for a new member mortgage with zero fee at 80 per cent LTV, where the rate is now 3.24 per cent, and on a £999 fee, the rate is now 3.09 per cent.
On Nationwide’s switcher three-year-fix at 75 per cent LTV with no fee is 2.89 per cent and the £999 fee paying alternative is 2.64 per cent.
The products are five-year fixed rates in its Pepper 60 range, which are suitable for remortgage customers who haven’t had a default or County Court Judgement (CCJ) in the last 60 months, but may have unsecured missed payments.
The products come with no application fee, a free valuation and a £500 cashback, which can be used to pay legal costs.
Rates start from 3.55 per cent up to 70 per cent loan to value (LTV), and increase to 3.65 per cent at 75 per cent LTV, 3.74 per cent up to 80 per cent LTV and 4.25 per cent at 85 per cent LTV.
The lender has also removed some two-year fixed rates at 65 per cent LTV and replaced them with two-year fixed rates at 70 per cent LTV, with rates starting from 2.9 per cent.
Paul Adams (pictured), sales director at Pepper Money, said that Bank of England data showed credit card debt had reached a record high and for many lenders outstanding debt could impact affordability, even if a customer’s profile was otherwise strong.
He continued that a low credit score could also prevent someone securing a mortgage, even if they had no record of missed payments.
Adams said: “This limited edition Pepper 60 product offers a competitive solution for customers with these circumstances and helps lower the total amount payable over the duration of a fixed rate period. This is yet another way that we are giving brokers better options to help more of their customers succeed with Pepper.”
The lender has brought back two and five-year fixed first-time buyer, house purchase and remortgage products with £995 fees.
TSB has also reintroduced 10-year fixed first-time buyer, house purchase and remortgage deals up to 75 per cent loan to value (LTV).
Rates on its two and five-year fixed first-time buyer and house purchase products up to 90 per cent LTV have been increased by up to 0.30 per cent. Meanwhile, rates on its two-year fixed first-time buyer and house purchase products at 90 to 95 per cent LTV with no fee have increased by up to 0.10 per cent.
On two and five-year fixed remortgages up to 85 per cent LTV, rates have increased by 0.30 per cent and five-year fixed new-build first-time buyer and house purchase rates have increased by 0.20 per cent.
Coventry BS cuts rates
Coventry for intermediaries has reduced rates on selected owner-occupier mortgages by up to 66 basis points. The lender has also cut rates on its offset and interest-only products, by up to 14 and 16 basis points respectively.
Some of the changes include a reduction from 3.25 per cent to 2.85 per cent on Coventry’s two-year fixed first-time buyer mortgage with early repayment charges (ERCs) at 95 per cent LTV. This has no product fee and offers £500 cashback.
Its five-year fixed owner-occupier mortgage has been reduced from 2.09 per cent to 1.95 per cent. It is available at 65 per cent LTV and has a £999 product fee. It is available for purchase, remortgage, product transfer and further advance.
Jonathan Stinton, head of intermediary relationships at Coventry Building Society, said: “We’re delighted to make significant rate reductions to our owner-occupier mortgages, as well as our offset and interest-only ranges.
“It’s great news for brokers, who can now find even better options for a range of clients, at a time when home buyers and home movers are facing rising costs elsewhere.”
