Kensington withdraws core residential mortgages and raises minimum loan size
The lender has also increased its minimum loan size to £80,000 and removed all right to buy products.
Craig McKinlay, new business director, Kensington Mortgages (pictured), said: “We have seen a strong increase in demand and delivering a high standard of service to our brokers is important to us.
“To continue to do this, we have temporarily withdrawn some of our product range due to the high volume of applications and to manage our service levels. We are constantly keeping our products under review and will notify our brokers as soon as possible when we relaunch these.”
It comes as Kensington launches in Northern Ireland, which takes the specialist lender’s coverage to the whole of the UK.
The lender said it will be offering both its residential and buy-to-let deals to brokers in Northern Ireland.
Deals in these ranges go up to 75 per cent loan to value with rates starting from 3.29 per cent.
The expansion comes ahead of Kensington celebrating its 25th birthday in 2021.
McKinlay added: “Although a small market, the Northern Ireland mortgage space has been growing over the last few years.
“Northern Ireland is also home to a rising population of self-employed workers, new business owners, and entrepreneurs. However, despite this growth, the market has not kept up with the evolving needs of these borrowers, who do not fit traditional lending criteria.
“The space is dominated by high-street banks and building societies – so there is an opportunity here to provide specialist, flexible solutions that do not currently exist.
He added that after launching in Scotland two years ago, expanding into Northern Ireland was the next step.
Slower return to growth means more Bank of England stimulus coming – Maddox
The BoE also increased the total quantitative easing (QE) target by £150bn to £875bn – beating market expectations which initially forecast £100bn.
This mainly consisted of £150bn worth of government bond purchases, whereas corporate bonds purchases remained at £20bn.
The MPC noted that the stimulus was to “support the economy” during the second national lockdown.
Despite continued media speculation, there was no mention of negative rates in the minutes, which indicated that the BoE is focussing on asset purchases for the near term.
The MPC’s tone was dovish, indicating an estimated contraction of the economy by close to three per cent in Q4 2020 due to the second lockdown, lowering 2020’s overall GDP growth to -11 per cent, a downward revision to August’s projections.
Economy and unemployment
Household spending was expected to increase at the start of next year, however the MPC acknowledged that the Brexit transition at the end of December would impact the economy as businesses adjust new arrangements.
The MPC also highlighted there would be a 7.25 per cent annual rise in GDP in 2021, revised down from the nine per cent increase anticipated in the August report.
However, the MPC upgraded its 2022 growth projection to 6.25 from 3.5 per cent.
The MPC now expects UK GDP to return to its pre-Covid levels in early 2022 rather than late next year.
Despite the extension of the furlough scheme, the latest Office for National Statistics (ONS) unemployment figures show unemployment has hit a four-year high at 4.8 per cent – but the MPC noted this will peak to 7.75 per cent by summer next year.
The MPC indicated that monetary policy will remain accommodative for some time, with no policy tightening expected until inflation returns sustainably to the two per cent target.
Recent ONS data indicates that inflation increased to 0.7 per cent in September 2020, up from 0.5 per cent in August 2020. The MPC expects inflation to rise to two per cent in two years’ time.
Negative rates forecast
With the fear of a second COVID wave and the risks of a no-deal Brexit, the market is expecting the BoE to cut interest rates below zero next year, for the first time ever.
The market expects the BoE base rate will fall to negative 25bps in the next six months and remain stagnant for the next two years, returning to zero in three years.
Forecasts for the three-month London Inter-bank Offered Rate (Libor) and two-year rates will fall to zero for the next two years and then increase to 25 bps in three years’ time.
Three-year rates remain at 25bps for the next year and are expected to increase to 50 bps in three years, and five-year rates to remain at zero for six months, then increase to 25bps.
Ten-year rates are likely to remain at 25bps for the next twelve months and then increase to 50bps in the two years.
All this follows on from the announcement of a first viable Covid-19 vaccine earlier this week.
Slower return means more stimulus
We believe at this stage, given that UK growth is likely to take longer to return to its pre-pandemic levels, that the likelihood of further stimulus of the BoE is currently on the horizon.
The MPC is still considering the operational implications of negative rates for financial institutions, and the avoidance of negative rates in the MPC minutes hints out that asset purchases will be the MPC primary tool for stimulus, for now.
The MPC added that it is “ready to take whatever action was necessary”.
UK ABS Primary securitisation markets continued to be very quiet this quarter and it is likely that transactions scheduled to access the market before the year-end will be postponed to early next year, on the back of the current economic backdrop.
Kensington withdraws high LTV resi deals and host of BTL products
The lender has withdrawn all standard residential products at 85 per cent loan to value (LTV) – its highest new business LTV.
It is however keeping its Hero range for essential workers such as firefighters, police officers, NHS staff and public sector teachers active at 85 per cent LTV.
It has also withdrawn a two-year fix at 70 per cent LTV at 1.99 per cent from its residential range.
In buy-to-let, Kensington is removing all two-year fixed products.
Craig McKinlay, new business director at Kensington Mortgages, (pictured) said: “We have seen a strong increase in demand and delivering a high standard of service to our brokers is important to us.
“To continue to do this, we have temporarily withdrawn some of our product range due to the high volume of applications and to manage our service levels.
“We are constantly keeping our products under review and will notify our brokers as soon as possible when we relaunch these.”
First-time buyer priorities to change in 2022 – Laker
Speaking on Mortgage Solutions Television in association with Kensington Mortgages, Laker said after young people have had time to reflect on changes in the job market caused by the pandemic, they may consider moving to different roles, upskilling or changing their lifestyle.
A combination of these decisions, Laker added, will influence the type of property they will choose as their first home.
“[First-time buyers] will be looking at the kind of move that will enable them to work from home,” she said.
“They might be thinking, do I want to work in the city or do I want to buy something a bit further out that might be cheaper but I can have an office there or I can walk to work, save money, get a better lifestyle.
“I think that is going to become more and more important.”
Laker was joined on the panel by Craig McKinlay, new business director of Kensington Mortgages, Martin Reynolds, chief executive of Simply Biz Mortgages and Adrian Scott, group mortgage services director of Connells Group.
Reynolds thought it was too early to say whether the move to more spacious areas would become commonplace.
“We need to see where businesses place themselves and what the high streets look like in six to 12 months’ time because I think it could change,” he said.
Climate change is another factor that will influence first time buyers’ decisions in 2022, said Laker.
Banks and building societies have begun to launch mortgages that incentivise buyers to purchase an energy efficient property or improve the efficiency of their current home.
Lenders that offer deals with cashback incentives or lower rates for green homes will stand apart from other banks and building societies, the panel heard.
Laker added: “I think that in 2022 first-time buyers are going to know what they are looking for and certainly we as intermediaries and lenders need to be looking out for that and having products and criteria that work.”
Regulator will target agile working and lender service levels – SimplyBiz
Speaking on Mortgage Solutions Television in association with Kensington Mortgages, Reynolds noted the regulator would expect everyone in the industry to be able to adopt more flexible working policies.
Reynolds, who is also chairman of the Association of Mortgage Intermediaries (AMI) noted that the pandemic had caused business continuity plans to be re-written across the industry and taken technology forward.
“As with probably a lot of other businesses, we moved our IT infrastructure probably 12 months forward in a week from where we were going to go,” he said.
“I think a lot of businesses were looking at being agile working from home a lot more, and it’s something that we wanted to do during the year, we just did it in March instead.”
He continued: “I think people will do that and I think the regulator will expect it.
“The regulator will especially talk to lenders and say where are your plans moving forward, how can you cope with that capacity?”
However, despite the switch to conducting business remotely, there is still a demand from borrowers for face-to-face advice.
Adrian Scott, group mortgage services director of Connells Group noted until the latest set of restrictions were imposed, customers were still wanting to come into branches.
“We’ve made a big change, we’ve adapted and now we do the majority of our business over the phone, but not all of it,” Scott said.
“Until the last week or so – customers did want to come in. So while branches are set up with PPE and screens and all the right protocols, customers were still wanting to come in and receive face-to-face advice.
“It was a fairly small percentage, but nonetheless it shows there is that appetite there and I don’t think that will go away,” he added.
Scott also echoed views from other contributors that businesses would need to continue to be flexible, and listen to customers and employees about the best way to operate.
Competitive rates and a busy remortgage market on cards for 2021
Appearing on Mortgage Solutions Television in association with Kensington Mortgages, the panellists debated how the mortgage and housing market would look next year.
Craig McKinlay, new business director of Kensington Mortgages said he hoped to see a return to normal service levels and product availability before quarter two next year.
“Clearly the market is going to be very busy in the run up to stamp duty ending and [with] the Help to Buy changes, so I think the market will stay busy up until maybe January and then get a bit quieter,” said McKinlay.
“And when it gets quieter hopefully that will allow lenders’ operations to recover and get back to higher LTVs if demand does drop.”
Hosted by contributing editor Samantha Partington, McKinlay was joined by Sally Laker, managing director of Mortgage Intelligence, Martin Reynolds, chief executive of Simply Biz Mortgages, and Adrian Scott, group mortgage services director of Connells Group.
Scott said the natural lull in purchase business after 31 March would give the market chance to regroup and reprice deals competitively, driving down interest rates.
Laker said the period would give brokers chance to get cases through ‘in a timely manner’ once again, however, she thinks there will still be plenty of families who want to move after the stamp duty holiday has ended.
Remortgaging, which looks set to be strong next year, will compensate for any slowdown on the purchase side of the market, said Reynolds.
“The data we’re seeing for cessations for  is up on this year, and that is including a big December this year when some lenders have their biggest cessations ever.”
He added: “Brokers will always be busy.”
‘We want to return to 90 per cent LTV in a way that protects brokers’ – Kensington
Speaking to Mortgage Solutions, new business director Craig McKinlay (pictured) said he was “not a fan” of going in and out of the market for limited periods as the lender preferred to take a measured approach and avoid spikes in service levels.
McKinlay added: “We’re thinking about how we can introduce it [90 per cent LTV] in a sensitive way that protects brokers and gives them some certainty.
“We’ve always written a lot of business at 90 per cent LTV, it’s always been our bestselling product but there’s so much demand and so few lenders that we can’t go back to 90 everywhere. We’ll just get overwhelmed, service would get bad then we’d have to pull out or change things,” McKinlay said.
Instead, the lender could potentially release low deposit mortgages on a smaller scale, rather than opening it up to the whole of market.
McKinlay said: “What we might do is launch it very selectively or on a tranche basis or some kind of limited distribution then open it up over time.”
Government 95 per cent mortgage scheme
McKinlay suggested the government’s plans to introduce 95 per cent mortgages could go further to encourage lenders back into the high LTV market.
He said: “It looks quite similar to the first version of Help to Buy we had in 2013. That worked well because at that time lenders weren’t doing high LTV lending similar to today.
“Then what happened is because the scheme was quite expensive for lenders, they decided to do it themselves which was great because that scheme stepped back and lenders stepped in. I think that was the government’s aim.”
However, McKinlay said he had concerns about the success of the scheme as it was not apparent there was any collaboration from the mortgage market.
He also suggested the best time for the initiative to be introduced would be before incentives like the stamp duty holiday close, so lenders have confidence knowing there is “another scheme on the horizon”.
As the lender navigates the current busy market, McKinlay said its staff were back to carrying out normal duties after being reassigned to handle payment holidays.
Additionally, an expansion of its team has brought application to offer time down to 20 days, nearer to what it was before the pandemic.
No employees were furloughed during the property market’s shutdown and the lender has recruited 30 new underwriting and sales employees. As well as this, in-person meetings with brokers have resumed.
“Our sales team are out doing physical visits where brokers are happy to do it and offices are Covid-compliant. We’re looking to get back to business as quickly as possible,” he added.
Adapting to new realities
Looking forward, the lender is hoping to expand into new markets but wants to be innovative in how it does so especially since it adopted a new platform which has given it the capacity to do so.
“Our new IT platform gives us capability to enter new markets. One of the reasons we moved to it is it’s much faster to launch new things,” McKinlay said.
He added: “There’s a whole list of things we don’t do currently, like shared ownership, expat buy-to-let and holiday let. So, we’re reviewing all those segments to look at which ones we want to enter.
“Our whole thing is we want to innovate like we did with our Eco and Heroes mortgages, we don’t want to have the same proposition as everybody else we want to come up with something different.”
He also said the lender was having conversations about what new markets might emerge following the pandemic as existing schemes end and people’s living habits change.
McKinlay said: “There are conversations about private shared equity to replace Help to Buy, mortgage indemnity guarantees, different things like that and we’re keen to be at the forefront.
“Now is the time to innovate. The market has been stuck in two- and five-year fixes since the last crisis. Covid has brought a lot of changes to people’s lives and circumstances so it’s our duty to look at how we respond to that and how our proposition fits the new reality.”
Kensington trims rates and lifts LTVs to 85 per cent across all resi deals
The residential rates will be cut by up to 0.4 per cent. Loan to values (LTVs) at 85 per cent have been reinstated for all residential products.
Rates have been cut by an extra 0.2 per cent on the Hero range and start at 3.09 for two-year fix at 75 per cent LTV.
The Select range is now offering 1.99 per cent at 70 per cent LTV and 3.84 per cent at 85 per cent LTV.
The maximum loan size in the Select range has increased to 850,000, up from 750,000.
On the buy to let products, rates have been cut by up to 0.3 per cent. At 75 per cent LTV, the two-year fixed rate was cut to 3.59 per cent and the five-year rate to 3.94 per cent.
The upper limit on BTL loan sizes was raised to £750,000, up from £500,000.
The lender has also re-launched its eKo £1,000 Cashback Mortgage
Craig McKinlay, new business director at Kensington Mortgages, said: “Our product re-launches open up new opportunities for our intermediaries and their clients. And our rate cuts reinforce our commitment to helping borrowers who are underserved and undervalued by high street lenders.”
Kensington launches lowest residential rate mortgage
This is available on Kensington’s Select range on a two-year fix at 70 per cent loan to value (LTV). It has a completion fee of £999 and is currently available on all sourcing systems as well as its own broker portal.
It is currently the only 70 per cent LTV mortgage the lender offers. Rates for deals at 75 per cent LTV and above start from 4.29 per cent. At the moment, Kensington is only lending up to 80 per cent LTV.
Kensington said it planned to announce further product updates and rate cuts in the future.
Craig McKinlay, new business director at Kensington Mortgages, said: “We’re always striving to offer the most competitive and affordable deals to help all borrowers at every stage of life.
“Our newest rate is one of the lowest available on the market from a specialist lender and we feel this shows our continued commitment to helping those who are underserved.”
Markets predicting negative base rate as BoE keeps options open – Maddox
While the total quantitative easing (QE) target remained at £745bn, the pace of bond purchases slowed to £4.4bn per week.
And surprisingly, the Bank of England (BoE) has indicated the economy will recover quicker than initially feared.
The MPC stated that this year’s GDP is now expected to fall by 9.5 per cent, compared to 14 per cent forecast in May.
A strong demand in consumer spending supported by several government schemes is expected to drive a recovery in the next few months.
For reference, GDP fell by a record 20.4 per cent in the three months to June.
This is the second successive quarter of decline, confirming that the UK is in recession, however, the June monthly figures did show a growth of 8.7 per cent, indicating the economy was recovering quicker than expected as lockdown eased.
Positive economic data
The MPC expects a significant rise in unemployment to 7.5 per cent by the end of the year, which was lower than the nine per cent peak expected in May.
On the positive side, according to the latest Office for National Statistics (ONS) numbers, the unemployment rate remained at 3.9 per cent in May.
However, as the chancellor’s furlough scheme is unwinding, we would expect the rate of unemployment to rise.
Recent ONS data indicates that inflation increased from 0.7 per cent in May to 0.8 per cent in June, highlighting an incremental improvement in the economy.
The BoE forecast inflation to fall towards zero at the end of this year, but recover to the two per cent target within the next three-years.
The MPC noted that lower energy prices and the government’s announcement to cut VAT will drag inflation over the second half of the year.
Negative rate outlook
With the fear of a second Covid-19 wave and the risks of a no-deal Brexit, the market is seeking guidance on whether the BoE will consider cutting interest rates below zero.
The market expects that the BoE base rate will fall to negative 25 basis points (bps) in the next six months and remain at that level until 2023.
However, the BoE has noted that at this stage, negative interest rates would not work to stimulate the economy but indicated it would continue to review its negative rate policy.
This suggests the potential usage of QE, or other related methods, later this year.
Forecasts for the three-month London Interbank Offered Rate (LIBOR), two-year and three-year swap rates remain at zero for the next three years, and five-year and 10-year rates to remain at 25bps for the next three years.
Overall, the markets expect short-term and long-term rates to remain within the same range until 2023, thereby implying that mortgage rates will likely remain stable or potentially decrease until such time.