Advisers should prepare their clients for any type of rate eventuality – Young
However, during those past 20 years, I cannot recall – even during the Credit Crunch and subsequent recession – a time when it was having to tackle some of the huge challenges it now faces.
Bank Base Rate (BBR) is central to this and even with the rate at a record low at the start of the year, it didn’t stop the MPC cutting it further to where it now currently sits at 0.1 per cent.
Part of the challenge within the mortgage market is highlighting to borrowers that a BBR of 0.1 per cent does not translate to rates of similar levels.
This is particularly when the ability of many borrowers to pay their mortgages is going to come under increasing pressure, specifically when the furlough scheme ends but even now as firms have to decide whether they can continue to function and what happens to their staff.
That said, with the BBR at 0.1 per cent there has been a growing interest in whether the next step could be for the MPC to take the rate into negative territory.
A point where it would charge banks to hold their reserves.
Advisers must explain
There appears to be a difference of opinion already among those on the MPC.
Whether this remains a step too far or not, it is indicative of the unique situation we all find ourselves in that this does appear to be a credible option for the bank.
There’s no doubting that BBR is a huge marker in terms of what is being done to stimulate the UK economy, and it’s a long way from those time periods when the MPC simply ratified the status quo month after month.
Given the talk around negative rates, advisers probably have a job to do here in terms of explaining what a potential negative BBR would mean for borrowers.
The answer is not a great deal in terms of their mortgage rates as they are still going to be in positive territory.
But if the logic above is followed through, then lenders might theoretically have a greater appetite to lend because the bank will be charging them for the money they keep on deposit.
Perhaps this could be good news for borrowers?
That would certainly be one of the outcomes the MPC would want to see if it dropped BBR into negative territory.
However, there is much to consider here, not least whether lenders’ appetite to lend would be shifted when we are all considering the economic impact on affordability and the ongoing ability of borrowers to pay.
Not to mention what savers will make of the situation.
It seems unlikely – at least in the short-term – that BBR will be moved below zero but this crisis has shown that those in power can’t afford to take any options off the table and they need to think the unthinkable and take decisions which would have been considered incredible just eight months ago.
We should therefore all prepare for any type of rate eventuality, and prepare our clients and borrowers for what this could mean for them, because they may be anticipating a period where their lenders start paying them, rather than the other way around.
And that simply is never going to happen.
Rent yields rise in seven out of nine English regions
In the lender’s quarter three Buy-to-Let Rental Barometer, which analyses rents in the regions Fleet lends to, yields in the North East rose the highest with a two per cent increase year-on-year to 8.8 per cent.
East Anglia and the West Midlands followed with rises of 0.8 per cent and 0.6 per cent, taking yields in those regions to six per cent and 7.2 per cent cent respectively.
The only two regions that experienced a negative change were the North West and East Midlands, where yields dropped 0.2 per cent and 0.1 per cent to 7.8 per cent and 6.8 per cent respectively.
The results are a notable contrast to quarter two when only three regions posted positive rental yields over the period.
National yield up
Overall, the barometer shows rental yields on residential buy-to-let properties of 6.4 per cent across England, up 0.4 per cent from the 6 per cent achieved in the third quarter of 2019.
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “It’s clearly positive to see the majority of regions in England posting increases in rental yields, and those regions which have showed a very slight dip were already at relatively high levels to begin with.
“We learnt from the post-credit crunch period over a decade ago that rents are not as susceptible to a recession as property prices, with many occupants more willing to opt for the shorter-term financial commitment offered by renting than longer-term property ownership.”
Cox said how yields performed in the coming months would give a better idea of how sustainable the current buoyancy of the rental market is, with unemployment expected to rise.
But early indications from Fleet’s analysis did not point to sharp falls in yields.
He added: “What we may see is further structural changes in rental demand particularly in urban centres with tenants who can now work from home feeling they are no longer tied to a property near to the office, and may look further afield where they might get more for their money.
“However, we have not yet seen any evidence to suggest this is becoming a trend.
“Within a shorter time-frame, the fact that, in England at least, the stamp duty holiday is available to landlord borrowers has undoubtedly been a factor in the increased interest in property investment purchases, with both new and existing landlords looking at the opportunities available and seeking to secure the savings that are available from the holiday.”
Fleet and Nucleus make senior appointments
Fleet Mortgages has appointed Louisa Ritchie (pictured) as key account manager. She will be responsible for managing the lender’s partnerships with existing accounts and identifying opportunities with new network and distribution partners.
Ritchie has more than 25 years’ experience in the financial services industry working for lenders, advisers and distributors.
Her most recent lender roles include her position as national account manager at lenders Together and TSB. She worked for Together for one year and was at TSB for three years.
Fleet has also added two telephone business development managers (TBDMs) to its team this month.
John Gorard will be TBDM for the South East after a two year stint for Castle Trust as its business development executive. Sarah Bowen has been made TBDM for the South West, having previously held both BDM and advisory roles.
Steve Cox, distribution director of Fleet Mortgages, said: “Our aim at Fleet is always to ensure we have quality individuals working directly with advisory firms and strategic partners, so we are very pleased to announce Louisa’s appointment as she arrives with vast mortgage market experience and a great reputation.
“This is a highly important part of the market and we want to ensure that as many advisers as possible have access to our buy-to-let products and services.”
Nucleus Commercial Finance
Nucleus Commercial Finance has hired Andy Bird as business development director of property finance.
He has 30 years’ industry experience and will be tasked with developing a new property proposition for the lender.
Bird joins from Santander where he was relationship director for real estate for six years.
In this role with Santander, he was responsible for a portfolio of 140 real estate clients across the Midlands and South West.
Prior to this, he worked at Barclays as head of the corporate team for Herefordshire and Worcestershire, and HSBC as senior relationship manager.
Bird said: “I’m looking forward to being able to use my extensive industry experience to shape a new proposition and further develop Nucleus’ property product suite.
“At a time when many businesses are looking for alternative sources of funding, I’m excited to work with Nucleus to help it expand its offering to its network of brokers, introducers and ultimately their clients.”
Chirag Shah, CEO of Nucleus Commercial Finance, added: “With the Coronavirus Business Interruption Loan Scheme (CBILS) soon coming to an end, many businesses will be looking for secured longer-term lending, and Andy’s appointment is testament to our commitment to this part of the market.
“Andy brings many years of industry experience, having worked at several of the biggest players and he will be central in supporting the growth of our property finance product.”
Fleet cuts rates and launches lifetime tracker range
Standard buy-to-let deals have been cut by five basis points with rates now starting at 3.19 per cent for two-year fixes up to 60 per cent loan to value (LTV).
At 70 per cent LTV rates now start at 3.29 per cent and at 75 per cent LTV rates start at 3.44 per cent.
Fleet is also offering five-year fixed-rate products with rental coverage calculations of both 125 per cent at 5.5 per cent and 125 per cent at pay rate.
Rates start at 3.54 per cent for five-year fixes at 60 per cent LTV, 3.59 per cent for 70 per cent LTV and 3.69 per cent for 75 per cent LTV.
Standard and limited company deals revert to the Bank of England Base Rate plus five per cent and deals for houses in multiple occupation (HMO) or multi-unit blocks (MUBs) revert to the base rate plus 5.25 per cent.
The specialist lender has also expanded its range of buy-to-let deals with the addition of lifetime tracker mortgages that have no early repayment charges.
Rates start at 3.3 per cent for standard and limited company mortgages and 3.46 per cent for HMOs and MUBs.
All tracker deals come with a rental calculation of 125 per cent at 5.5 per cent and a two per cent fee.
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “Cutting the prices of all our standard and limited company products makes them even more attractive and we’ve been able to do this because of the strength of our relationships with our funders, and their appetite to be active in the UK buy-to-let space.
“We are also changing all our revert rates to track the Bank of England Base Rate which will be easier for customers to understand and provide extra clarity for advisers when explaining our product options.
“In doing this, it has opened up our ability to launch a brand new range of lifetime trackers across our three core product ranges, which, given they come with no early repayment charges at all, will I’m sure be of interest to many landlord borrowers.”
Time running out for landlords to take advantage of stamp duty holiday – Young
But delve a little deeper into the call from Mortgages for Business to landlords to do just this and you’ll see that there is plenty behind the headline to justify those investors getting their houses in order right now if they want to complete by 31 March 2021.
Not least of course is the process they will need to go through when they have found a property they want to put an offer on.
There is no doubting that everyone will be working flat out in order to achieve completion by that date, and there are clear historical precedents for when the entire industry did just that.
You only need to go back to 2015/16 when the three per cent stamp duty surcharge was about to be introduced, to see the increase in demand, landlord activity, and in pressure on property professionals to get these sales over the line before the extra charges kicked in.
Not the same scenario
However 2020/21 feels a lot to different to back then.
We are barely out of lockdown, many firms are still not at full capacity, thousands of people are not in offices, many are still furloughed, and there is uncertainty about second waves, local lockdowns and what this might mean for moving property sales through the system.
You might also have seen the recent suggestion, from the Conveyancing Association based on the average time of marketing to completion, that a property would need to be up for sale by the end of September in order to complete by the end of March and thus secure the stamp duty saving.
I suspect that’s an average taken from previous years, not this one.
The good news however is that, based on initial activity levels post-stamp duty announcement, landlords are not being deterred by this, although their expectation that a sale can be completed is going to need to be matched by reality.
Advantage may slip away
As Mortgages for Business pointed out, while supply of homes for sale should improve over the coming weeks and months, this does not necessarily favour landlords as the current situation may do now.
We were already seeing an uptick in remortgage activity immediately post-lockdown – before the stamp duty announcement was made – which seemed to show that landlords were literally gearing up to add to portfolios anyway.
If they have that finance in place, the ability to secure a property now will clearly put them in a strong position in terms of making offers and having them accepted.
As supply increases, and residential owners get to grips with their own needs and purchase options, that ready to move quickly advantage may slip away.
There are other existing advantages for landlords right now that may not hold forever – namely strong competition from buy-to-let lenders, keen pricing and broadening criteria, plus current property valuations which may begin to inch up the further along we move.
From our perspective, there is a strong desire to help as many landlord borrowers as possible to secure their remortgages/purchase loans in order to help them achieve a stamp duty saving and to do everything we can to get them to completion well in advance of the deadline.
The ability to do that will however rely on the market looking more normal for the next seven months or so, and for no significant Covid-19 related setbacks.
This is truly the great unknown and, as advisers active in this market, there is therefore no reason to hold back on a message that mirrors that of Mortgages for Business.
The time for landlords to act is now.
Fleet’s funders give green light to mortgage rate cuts
Fleet said increasingly positive discussions with its funders had allowed it to make the changes to its pricing.
The lender said it would continue to look at both its loan to value (LTV) limits and criteria as it appraised market conditions and borrower demand, particularly in light of the recent stamp duty holiday.
Standard and limited company two-year fixes at 60 per cent LTV have been cut to 3.19 per cent; at 70 per cent LTV rates are down to 3.29 per cent and at 75 per cent LTV they are down to 3.49 per cent.
Non-pay rate five-year fixes, which use an interest cover ratio (ICR) of 125 per cent at 5.5 per cent, at 60, 70, and 75 per cent LTV are down to 3.54 per cent, 3.59 per cent and 3.74 per cent respectively.
Standard and limited company five-year fixed pay-rate products, which use an ICR of 125 per cent of the product rate, at 60 per cent and 70 per cent LTV are down to 3.69 per cent and 3.75 per cent respectively.
For HMO borrowers five-year fixed rates at 60 and 70 per cent LTV have been cut by ten basis points.
Maximum loans lifted
The specialist buy-to-let lender has also removed the £250,000 lending restriction introduced on some products that were relaunched after the lockdown restrictions were lifted.
Free valuations for standard and limited company borrowers are also available up to £500,000.
Houses of Multiple Occupation (HMO) are now available up to 75 per cent loan to value (LTV), priced at 3.79 per cent for a two-year fix and 3.99 per cent for a five-year fix.
Maximum loan sizes at 70 per cent LTV have been increased to £1.5m for standard and limited company products, and £1m for 75 per cent LTV.
Meanwhile LTVs for HMOs have been increased to 75 per cent with a maximum loan size of £1m. At 70 per cent the maximum loan size is now £1.5m.
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “Surprises are rare in the mortgage and property market, but the government’s recent decision to allow landlords access to the stamp duty holiday up until the end of March next year was definitely a pleasant one that few in the market would have anticipated.
“Landlords were already looking at the market conditions post-lockdown as an opportunity to be more acquisitive, and with this stamp duty incentive now in place, we are already seeing a growing level of demand and interest from those who want to add to portfolios and take advantage of the stamp duty saving.”
Rental yields rise in North West but UK average dips – Fleet Mortgages
The East Midlands posted the biggest year-on-year fall of 2.1 per cent down to a 4.4 per cent yield from 6.5 per cent last year.
Fleet’s Buy-to-Let Rental Barometer, comparing quarter two rental yields across England with Q2 2019, shows yields fell on average 0.3 per cent in total.
In the three months ending December 2019, Fleet’s previous report showed only one region, the North West, with a drop in rental yield over the period.
However, in the latest market update, there have been over one per cent falls in the North, Yorkshire & Humberside, and East Midlands, with smaller falls posted in the South West, East Anglia and Greater London.
The three regions to post positive rental yields over the period are the North West, West Midlands and the South East.
Fleet said that the overall data represented softer rental yields across England but with little signs of immediate falls.
The specialist lender said the findings did suggest that property investors should be cautious when predicting future rental yield levels because surveyors had only been physically valuing properties for around five weeks.
Furthermore, the lender warned that the support of the government’s furlough scheme and the current moratorium on evictions, may mean the full extent of the impact of the Covid-19 pandemic on rental demand and yield is not yet visible.
Steve Cox, distribution director of Fleet Mortgages, said: “The economic backdrop may appear somewhat bleak at present, but this might change quickly depending on the type of recovery we get, and certainly at the moment our latest figures do not suggest sharp falls in rental yield.
“This may well be as a result of pent-up demand and more households being formed as a result of the lockdown, but it’s clear that more data will be required and it will be interesting to see whether this trend will be maintained into the rest of the year.
“What we do know, as a result of our experience through the credit crunch and the recession that followed, is rents are not as susceptible to these economic hits as property prices. Occupants are much more likely to opt for shorter-term financial commitments offered by renting in such circumstances, rather than move to longer-term property ownership.”
Q2 figures for Wales were not included as different lockdown rules applied to the Welsh market which meant robust rental yield data was not available.
Average rental yields year-on-year change
North 6.3 per cent -1.2 per cent
North West 7.6 per cent +0.6per cent
Yorkshire and Humberside 5.5 per cent -1.7per cent
East Midlands 4.4 per cent -2.1per cent
West Midlands 7.0 per cent +0.9per cent
South West 5.1 per cent -0.6per cent
East Anglia 5.3 per cent -0.1per cent
South East 5.5 per cent +0.6per cent
Greater London 4.6 per cent -0.4per cent
Total 5.3 per cent -0.3 per cent
Non-banks need financial support to help borrowers in the future – Young
One future takeaway might be how we balance government support with the provision of mortgages by specialist, non-deposit taking, lending institutions.
It seems likely this period will result in greater numbers of borrowers requiring specialist mortgage loans; buy-to-let, self-employed, contractors and freelancers or indeed the credit-impaired.
It does not take a genius to work out that these borrower demographics might grow as a result of the economic impact of Covid-19.
And where will they turn for mortgages? Specialist lenders will probably fill this particular breach so there will need to be a change in thinking around government support and who can access it.
Specialist lenders have, once again, been placed in a tricky position during the crisis because, for the most part, they have not been able to make use of the government and Bank of England money that has been freely available to deposit-taking organisations.
The capital markets have effectively been closed for the past six to eight weeks, meaning the spreads have widened, and the cost of funds have moved from 90 basis points over the London inter-bank offered rate (Libor), to a peak of 310 points over Libor.
Obviously the cost of this money was far too much to be passed onto borrowers.
Hence, the decision by many specialists to either cease new business entirely or to pull back considerably. It has meant less lending and tighter criteria.
The fact is that advisers would not have been able to sell mortgages to clients at the costs we would have needed to put on our loans.
It has meant a specialist lending sector under severe pressure, and while there are some green shoots starting to be seen, this is a long-term ‘game’.
There has been some talk that we might see movement in the capital markets by September or October. Other commentators have suggested the market could be in limbo until the Spring of 2021.
That has serious repercussions for a number of lenders and it could mean the difference between survival or not.
It would be incredibly frustrating to see fewer lenders and products in the specialist space, at a time when the need for these mortgages is only likely to grow.
Need for a solution
Fleet has been fortunate in that we negotiated lines with our funders to keep lending during this period, albeit at a reduced level. But it would have been incredibly helpful to have access to the government support.
This was not, however, possible.
If there are further waves of Covid-19, or indeed future virus strains which have a severe impact on our market, then we need to find a solution here.
Specialist lenders contribute a great deal in terms of helping borrowers who would otherwise not be helped by the mainstream players.
We talk a lot about the depth and breadth of the UK mortgage market and the recognition that this is not supplied in its entirety by deposit-taking banks and building societies.
That being the case, I’m sure a solution can be found to support those lenders during future turbulent times – the benefits for the market and those borrowers would be huge. We must keep working towards it.
Fleet returns to 75 per cent LTV and Pepper launches ‘light’ range – round-up
Despite its return to 75 per cent LTV, Fleet said lending would still be “subdued” as capital markets were not yet near a “business as usual” level.
The lender limited its lending to 60 per cent LTV in March in response to market conditions caused by the coronavirus pandemic.
Within its standard range, Fleet has launched two-year fixes at 3.44 per cent for 70 per cent LTV and 3.64 per cent for 75 per cent LTV. Both have a one per cent fee and an interest cover ratio (ICR) of 125 per cent at 5.5 per cent.
There are also five-year fixes priced at 3.74 per cent for 70 per cent LTV and 3.79 per cent for 75 per cent LTV, both with a 1.5 per cent fee and an ICR of 125 per cent at 5.5 per cent.
Among its limited company offering, there are two-year fixes with a rate of 3.54 per cent for 70 per cent LTV and 3.74 per cent for 75 per cent LTV, both with a fee of 1.25 per cent and an ICR of 125 per cent at five per cent.
For HMO lending, there is a five-year fix at 70 per cent LTV with a rate of 3.94 per cent, a 1.5 per cent fee and an ICR of 125 per cent at the initial rate.
Its 60 per cent LTV offering has also seen rate cuts; the standard two-year fix is down to 3.39 per cent and the five-year fix is down to 3.8 per cent.
The 60 per cent LTV limited company range has also seen its two-year fix reduced to 3.39 per cent.
Not yet business as usual
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “The capital markets are not yet near a ‘business as usual’ position as this can’t be a light switch that we can turn on, even with the housing market reopening and especially since physical valuations can now take place.”
“Our funders want us to approach this market cautiously and, to that end, our appetite for lending is still going to be subdued, but slowly climbing.”
“However, we believe this is good news for the market and means we can begin again to re-engage with intermediaries at a higher LTV level and offer them more options for those landlord clients who are seeking finance,” he added.
Pepper launches ‘light’ range
Pepper Money has launched a Pepper Light mortgage range and made changes to its range following feedback from brokers.
Pepper Light is a range of residential and buy to let products for customers who may have experienced defaults, missed payments and arrears, but received no county court judgements (CCJs) and rates start from 3.70 per cent.
As part of its revision to its wider offering, Pepper has also removed its Pepper 6 products.
Paul Adams, sales director at Pepper Money, said: “Specialist lending in the current environment is a real balancing act. We are seeing so much demand across our range as the number of customers with complex circumstances continues to grow, but each case also requires extra underwriting scrutiny, given the uncertain economic environment.
“So, it’s important that we respond to the demand to ensure brokers have the most appropriate solution for their clients but also take steps to protect our service where necessary.”
Fleet Mortgages resumes physical valuations on pipeline and new business
The lender had postponed all valuations as a result of the government lockdown but the recent allowance of physical inspections has meant applications can now be moved through to offer.
The lender is lending up to 60 per cent loan to value (LTV) with two- and five-year fixed options for individual landlords, limited companies and those financing homes in multiple occupancy and multi-unit blocks.
Fleet Mortgages said while it retained the support of its funders, its appetite for new business would be monitored with stakeholders as it reviewed the market and the position of the capital markets.
New applications to Fleet will be processed in the order they were received and where all fees are paid. The lender has also said it would update advisers of its lending appetite as this is expected to increase over time.
It will also manage application volumes on a day-to-day basis.
Steve Cox (pictured), distribution director of Fleet Mortgages, said: “While we are open for new business and our process is ‘business as usual’, initially we are going to keep a tight rein on volume as we await to see how the capital markets react and how the situation plays out with the unlocking of the residential mortgage-backed securities markets.
“Positively, our funders are very supportive of the buy-to-let sector in a post-Covid-19 environment, and that bodes well for us increasing our appetite as we move forward, however we want to stress to advisers that we will be adopting a cautious approach initially.”
“This is an important step for both Fleet, and the entire specialist lending market, and we are confident it is the beginning of a return to a new version of normality after what has been a very challenging few months,” he added.