TMW, Kensington and Teachers BS update BTL products – round-up
The Mortgage Works (TMW) has withdrawn four of its new business deals and increased the rate on another.
The lender, which is part of Nationwide Building Society, has increased the rate on its two-year fixed limited company product up to 75 per cent loan to value (LTV) with a £995 fee to 3.39 per cent from 3.19 per cent.
Two of those deals withdrawn are also from its limited company range, both with no fee, while the others are five-year fixes from its mainstream range up to 50 per cent LTV with £1,995 fee.
Kensington cuts rates
Kensington Mortgages has cut rates on its buy-to-let deals by up to 0.5 per cent.
The lender has four fixed rate products available at up to 75 per cent LTV open to individuals or limited companies.
The two-year fixes are now available at 4.14 per cent with a £1,999 fee, or 4.49 per cent with no fee – assessment rates are at 6.15 per cent and 6.49 per cent respectively.
A pair of five-year fixes are live at 4.24 per cent with a £1,999 fee and 4.59 per cent fee free – assessment rates for these are unchanged.
Teachers BS extends holiday let deals
Teachers Building Society has added two fixed rate products to its existing variable rate holiday let deal.
The mutual said these were aimed at supporting increased demand from new and existing property investors looking to capitalise on growth in the UK holiday-let market.
“As more consumers plan to take a break on home soil as a result of the ongoing pandemic, the need for self-catering holiday accommodation in popular destinations is growing,” it said.
The products, which are available from today are available up to 75 per cent LTV, with the three-year fix at 3.49 per cent and the five-year loan at 3.74 per cent.
Both products have a £99 application fee and a £899 arrangement fee.
Teachers for Intermediaries business development manager Ralph Punter said: “As our own research has shown, consumer demand for UK based holidays has increased as a direct result of the pandemic, a trend we expect to continue into next year too.
“Combined with the recently announced stamp duty holiday, we expect to see increased interest in the holiday let market from investors.
“Our new mortgage products will support those looking to purchase holiday-let homes for short term rental purposes.”
Belmont Green’s £350m securitisation opens door for Vida’s return
The transaction should hasten Vida Homeloans return to the market after it was forced to stop lending during the coronavirus crisis.
The new deal, led by Barclays, JP Morgan, NatWest Markets and Santander, is the fifth residential mortgage backed securitisation (RMBS) transaction for Belmont Green.
The specialist lender said the transaction, Tower Bridge Funding 2020-1, saw significant appetite from investors.
The trade included a number of structural features, designed to mitigate any investor concerns over the impact of the pandemic.
AAA notes sold at 137 basis points over SONIA (Sterling Overnight Index Average), comparing favourably to Belmont Green’s Tower Bridge Funding No.4 securitisation in June 2019, which was priced only 10 basis points lower that the latest deal, the lender said.
Anth Mooney (pictured), chief executive, Belmont Green, said: “Covid-19 has had an unprecedented impact on the UK mortgage market. The virus and the subsequent lockdown effectively closed the securitisation markets, so our deal can be seen as an important staging post in the recovery of market confidence.
“Our responsibility as a specialist lender at this time is to help people with what are real life circumstances. Vida Homeloans can now look forward and refocus on the vital role it plays in supporting Britain’s many underserved borrowers, from key workers to single parents to the self-employed.”
Lack of funding support
In June, Kensington Mortgages completed a securitisation deal which the lender said would allow it to expand its product range and reduce some of the pricing on its deals.
Vida Homeloans temporarily stopped taking in any new mortgage business on 25 March, having pulled some of its products from sale a week earlier.
Vida cited a lack of access to liquidity facilities offered by the Treasury and the Bank of England to help lenders support borrowers who are financially affected by the pandemic.
Specialist non-bank lenders have been particularly hard hit since the coronavirus crisis began with several stopping lending as capital markets closed down and government and regulators enforced mortgage payment holidays for borrowers.
HM Treasury and the Bank of England have been in discussions with trade bodies about designing a scheme for non-bank lenders to support their funding models.
Giving evidence to the Treasury Select Committee of MPs in April, UK Finance CEO Stephen Jones explained that non-bank lenders financed through bank lines and then into securitisation structures were suffering.
He said: “Those funding structures are not working at the moment because the underlying markets are not working.
“And we are in very detailed discussions with Treasury and the Bank of England to try and design a scheme that will enable those incredibly important credit transmission mechanisms, often to underserved segments of the consumer and SME markets, to be able to be continue to operate.”
However, nothing has been published yet.
Markets disappointed by only £1bn increase in QE – Maddox
Furthermore, policymakers announced the expansion of quantitative easing (QE) by £100bn, disappointing the markets which were expecting a higher stimulus.
This means the total QE target of £745bn should be reached at the end of this year.
The MPC stated in its minutes that the fall in global and UK GDP in Q2 would be “less severe than set out in the May report”, but it would be difficult to make a “clear inference” about the recovery thereafter.
It added: “recovery in demand and output was occurring sooner and materially faster than had been expected”.
GDP fell by 10.4 per cent in the three months to April 2020, and monthly GDP fell by 20.4 per cent in April 2020, following a six per cent fall in March.
The minutes also highlighted that UK households were likely to behave cautiously despite the relaxation of Covid-19 restrictions, therefore there was a risk of unemployment being “higher and more persistent”.
Meanwhile, Office for National Statistics (ONS) data showed that inflation had fallen sharply to a four-year low from 0.8 per cent in April to 0.5 per cent in May.
This is well below the Bank of England two per cent target with the drag in inflation the result of the collapse of demand due to the pandemic.
Three years at zero
The market now expects the BoE base rate to remain at close to zero basis points (bps) for the next three years.
Interestingly, while negative rates have started to be a hot topic in the markets, governor Andrew Bailey noted that negative rates were not discussed during the MPC meeting, pushing away the talks to a further rate cut for now.
Forecasts for three-month London Inter-bank Offered Rate (Libor), two-year, three-year and five-year swap rates remain at 25bps for the next three years.
The forecast for 10-year swap rates remains at 50bps.
Kensington relaunches Help to Buy and BTL purchases; NatWest increases PT rates
Kensington returns to new build
Kensington Mortgages is relaunching its new build and Help to Buy ranges from next week
It will also resume buy-to-let purchase applications.
Mortgage Solutions understands the lender is introducing a raft of changes to its offering on June 3.
Furthermore, the lender will launch 80 per cent LTV mortgages within its select, core, hero and young professional ranges as it continues to reintroduce its range following the coronavirus disruption.
Earlier this month, the lender brought its lending back up to 75 per cent LTV following a temporary restriction on lending above 70 per cent LTV.
NatWest PT changes
NatWest has increased rates on its residential two- and five-year fixed switcher products for existing customers by as much as 46 basis points (bps), effective from today.
Its two-year fixed rate fee-free switcher product at 80 per cent loan to value (LTV) has seen a 0.07 per cent rate increase to 2.89 per cent, while the £955 fee equivalent has risen by 0.18 per cent to 1.70 per cent.
The 85 per cent two-year fixed switcher with a £995 product fee has increased by 28bps to 1.96 per cent and the fee-free option has seen a 0.7 per cent rise to 2.98 per cent.
At 90 per cent LTV, the fee-free two-year fixed switcher has seen its rate increased by 0.13 per cent to 3.08 per cent and the equivalent with a £995 fee has risen by 0.46 per cent to 2.26 per cent.
Among the five-year fixed rate switcher products, the fee-free 80 per cent LTV offering has increased by 0.07 per cent to 3.17 per cent. The version with a £995 fee has risen by 23bps to 2.11 per cent.
At 85 per cent LTV, the rate for the deal with a £995 fee has gone up by 40bps to 2.47 per cent and the 90 per cent LTV equivalent has increased by 0.36 per cent to 2.71 per cent.
Base rate expected to remain near zero for three years – Maddox
The MPC voted 7-2 and not to add to the current bond buying programme of £645bn, though two members supported an extra £100bn of purchases.
The committee also suggested there could be more stimulus in June and there was no limit to the bond-buying programme, like the US Federal Reserve and European Central Bank.
According to the Office for National Statistics (ONS), GDP contracted two per cent in the first quarter of 2020 – better than the expected decrease of 2.5 per cent, but still the largest fall since the financial crisis.
Monthly GDP decreased by 5.8 per cent in March, the largest monthly fall since 1997, however this was still above analysts’ expectations of a decrease of 7.2 per cent.
Economic impact and recovery
The committee has also constructed an “illustrative scenario” which predicts that UK growth will fall by 25 per cent in the second quarter of 2020 but will recover, which will lead GDP to crash by 14 per cent over the year.
This would be the worst economic drop since 1706. However, it was predicted that it will strongly rebound by 15 per cent in 2021.
It added that the coronavirus impact will lead to inflation to drop below one per cent and will stay low and only recover to the two per cent target in 2022.
The BoE predicted that UK unemployment is expected to increase to nine per cent in the second quarter of this year, this is higher than the 2008 financial crisis and assumed the rate to remain high at seven per cent in 2021 and recover to four per cent in 2022.
To put things into perspective, the UK’s unemployment rate was at 3.9 per cent in February.
Near-zero base rate
The market now expects the BoE base rate to remain at close to zero basis points (bps) for the next three years.
Forecasts expect the three-month London Inter-Bank Offered Rate (LIBOR) and two-year swap rate to drop to 0bps for the next two years and increase to 25bps in the third year, while the forecast for three-year swap rate remains at 25bps.
The forecast for the five-year and 10-year swap rates remain at 50bps.
Kensington Mortgages relaunches 75 per cent LTV deals
The relaunch applies to all products across its Select, Core, right to buy and buy to let ranges and is available from 5 May.
This follows its announcement in March where it confirmed it was removing residential and buy to let products above 70 per cent LTV.
On Kensington’s Select range, rates start from 4.29 per cent for a two-year fix and 4.49 per cent for a five-year fixed rate. The range will have a maximum loan amount of £750,000 and £500,000 for Core, right to buy and buy to let products.
Kensington Mortgages has also launched an automated valuation model which will be available for all residential new purchases, remortgages and buy to let remortgages.
The digital valuation is not available for products that require a physical valuation to progress or buy-to-let purchases.
Craig McKinlay (pictured), new business director at Kensington Mortgages, said the lender wanted to help brokers and customers as best as it can during this time.
“This is an unprecedented time for everyone – customers, lenders and the industry alike – and we’ve been working hard to reintroduce our 75 per cent LTV range,” he said.
“We have experienced an industry-wide challenge obtaining physical valuations and have been working had to produce our non-physical valuation solution, which we are pleased to now have in place too.”
“We are constantly reviewing our market position to keep up to date with official guidance and industry best practice in these exceptional times,” he added.
Kensington and Masthaven further cut products and LTVs
The lender has cut its maximum loan to value (LTV) to 70 per cent for new applications on residential and buy-to-let (BTL) business and is cancelling some cases not yet at offer.
It has withdrawn its whole ranges of new build including Help to Buy, later life, and houses in multiple occupation (HMO) and multi-unit block (MUB) products.
It warned that while sourcing systems may still indicate it is open to applications at 75 per cent LTV, the lender highlighted that it will only consider loans at 70 per cent LTV or below.
All pipeline cases already in receipt of a valuation will continue as usual, while pipeline cases below 70 per cent LTV without a valuation will proceed when an alternative valuation solution is available.
Kensington said it was “regrettably” cancelling pipeline cases above 70 per cent LTV without a valuation as it will have no valuation solution until internal valuations resume.
The list of property exclusions has also been extended.
Kensington apologised to brokers for the inconvenience and said that having anticipated this situation it was working on a solution which it hopes will be available shortly.
“The valuations solution we are exploring will not be suitable for our full product range and so, to be fair to you and your customers, we have now also withdrawn those further products that we expect will still require a physical valuation, such as new build,” it said.
“This is in addition to the removal of all buy-to-let and residential products above 70 per cent LTV.
“Apologies for the disruption this will cause to you and your clients, please bear with us and we will communicate more around our new valuations process as soon as it is ready,” it added.
Masthaven has also reduced its maximum LTV and removed many products.
Its first charge residential range is now limited to its MB0 and MB1 deals with a maximum LTV of 75 per cent, as is its buy-to-let range.
Specialist property and specialist landlord and tenant criteria are no longer available.
For employed applicants variable pay such as overtime, bonus or commission is no longer accepted, only basic annual salary can be used when completing an affordability assessment or decision in principle (DIP).
The second charge range of products is now limited to 70 per cent LTV.
Kensington reduces range to 75 per cent LTV but still accepting applications
However, the lender has been hit by the restrictions imposed upon valuers and others involved in the process.
The lender told Specialist Lending Solutions that it was continuing to accept applications but it would only be able to progress these to the valuation stage at present.
Kensington Mortgages new business director Craig McKinlay said it was an unprecedented time for everyone and that customers, lenders and the wider industry must all work together.
“We’ve decided to remove some of our product ranges to try and protect our customers during this uncertain time,” he said.
“However, we have absolutely no plans to pull our full range and are in a strong position with our funding. We will continue to monitor the current environment and are in close contact with UK Finance to keep up to date with official guidance and industry best practice in these exceptional times.”
On the issue of valuations he added: “We have an industry wide challenge obtaining physical valuations and we are working on a contingency solution which we hope to have in place soon.
“However, in the meantime any new cases will not proceed past valuation until this is resolved.”
Masthaven is still accepting new applications, but did not give any more details about alterations to products or processes.
Markets expect base rate cut to zero – Maddox
The MPC also voted unanimously to enlarge the TFSME (Term Funding Scheme with additional incentives for SMEs) which was announced a week ago in its first intra-meeting action since the Global Financial Crisis.
The scheme will be available to drawdown for 12 months starting in April, providing additional incentives for banks to support lending to the SMEs.
Similar to the TFS, the scheme has a maturity of four years and the participating banks have the flexibility to repay in full or in part ahead of the scheme’s maturity.
Zero base rate
The market now expects the BoE base rate to be cut to zero for the next year.
Forecasts for three-month LIBOR (London Inter-Bank Offered Rate) and two-year swap rate were lowered by 25bps to 25bps for the next three months, while the forecast for three-year swap rate remained the same at 50bps.
Forecasts for five-year swap rate and 10-year swap rate, on the other hand, increased by 25bps to 75bps.
The Bank of England is taking out the big guns. The rate cut is mostly just a signal – trimming another 15bp to 0.10 per cent will have a negligible impact, as rates are already so low.
What will make a big difference are the two other measures announced by the bank – a massive 45 per cent increase in the quantitative easing programme to £645bn, and even more money to the funding schemes that can get cash to consumers and small businesses
Crowded market in recovery
Traditional banks and building societies have already lowered interest rates on mortgage products in response to the previous rate cuts on 11 March, resulting in mortgage customers benefitting from cheaper interest rates.
Due to the elevated volatility in the financial markets, we expect little activity from lenders to raise new funding this month until there are some signs of stabilisation and decreased volatility which can result in a very crowded market at some point this quarter when the market recovers.
Of note, the TFS launched by the BoE is likely to reduce the number of prime lenders accessing the wholesale market this year given they will take advantage of the cheap funding offered by the central bank.
The lack of supply may drive market spreads down in the second half of the year for non-bank lenders relying fully on the wholesale market to raise new funds – similar dynamics as post the Brexit vote in 2016.
Market reactions to coronavirus should keep mortgage rates down
Maddox told Mortgage Solutions that falls in swap rates over the last two weeks would make it more likely the Bank of England would hold or potentially reduce its key base rate.
But Maddox highlighted that he does not anticipate major shifts in mortgage rates unless the economic situation becomes more serious.
Markets have reacted strongly to the spread of the coronavirus as fears about its impact and potential impact on some industries have scared many investors.
The FTSE 100 in London is currently suffering its worst week since 2011 – dropping more than 500 points since Monday, while European and North American markets have tumbled.
Government bond yields have also fallen in the US and this has led to predictions of mortgage rates dropping notably across the Atlantic, but that may be some way off in the UK due to the differing way mortgage lending is typically funded.
Swap rates sliding
“In the UK, we have seen swap rates come down from about 0.65 per cent to 0.55 per cent in the last 10 days, as the market is predicting slower central bank rate increases,” Maddox said.
“For mortgages, lenders also have an eye on deposit rates, but there will definitely be an impact and I think it will help keep mortgage rates down.”
However, Maddox noted there could be pressure from external funding sources which may prop rates up if funders chose to wait out the impacts of the virus.
“The cost of wholesale funding could go up a little bit as investors may sit on the side lines, so if the cost of borrowing for big UK banks goes up then that would counteract the reduction in swap rates and push mortgage rates up,” he added.