Rocketing inflation will induce steeper base rate rises – Maddox
The committee has begun to plan the process of selling UK government bonds, currently held in the Asset Purchase Facility, later this year.
Global inflationary pressures have intensified due to the Russian invasion of Ukraine, with energy price increases at the core. Pressure on supply chains is also being felt due to the war, as Ukraine and Russia are both producers of key imports such as metals and fertilisers. Supply chain pressures are also being felt due the Covid-19 resurgence in China, with their Covid Zero policy meaning many cities have been in lockdown since the end of March.
Inflation continues to rise, reaching 6.1 per cent in February and increasing to seven per cent in March, higher than expected in the February report. Inflation is now expected to reach over nine per cent in Q2, and to average just over 10 per cent at its expected peak in Q4 of this year. This is largely due to the Ofgem utility price cap increase in April, with a further increase of up to 30 per cent expected in the October review.
Looking further ahead, inflation is expected to decrease materially once energy prices stop rising, however the inflation target of two per cent is not expected to be met for over two years.
UK GDP growth has slowed and was 0.1 per cent in February with consumer confidence falling due to the squeeze on household disposable incomes.
The latest Office for National Statistics (ONS) figures continue to show unemployment decreasing, down to 3.8 per cent in the three months to February, however the number of job vacancies in January to March 2022 reached a record high of 1.288 million.
Although we continue to see unemployment decreasing in the near term, it is expected to rise to 5.5 per cent in three years’ time with slower economic growth. Regular pay (not including bonuses) increased by four per cent from December to February, however once adjusted for inflation sat at -1 per cent on the year, showing inflation is causing an overall reduction in regular pay on households.
||Forecast in rates
||One month’s time
||Three month’s time
||Six month’s time
||12 month’s time
||Two year’s time
||Three year’s time
|Bank of England Base Rate*
|Two-year fixed rate**
|Three-year fixed rate**
|Five-year fixed rate**
|10-year fixed rate**
* Using OIS Curve [rounded to two decimal points]
**Based on the swap curve
Due to the continued rise in inflation, markets are expecting further steep increases in the Bank of England base rate with large increases throughout the rest of this year, exceeding two per cent within six months. Markets also expect that the bank rate will increase to over 2.5 per cent within the next 12 months.
Market participants also expect the two-year swap rate to increase further over the next three months and to then flatten out, with the three-year swap rate following the same path.
The five and 10-year swap rates have slowly been increasing, but are expected to remain relatively flat over the next 12 months, then to drop slightly in the next two to three years.
UK securitisation market
Issuances returned into the primary market this month, after an eight-week break due to the geopolitical climate, with four transactions pricings; one from a prime lender and the other three from non-conforming and buy-to-let shelves.
Currently, in 2022, circa £14bn of UK residential mortgage-backed securities (RMBS) paper have been placed into the market compared to circa £7.6bn this time last year, and around £6.3bn in 2020.
Kensington appoints Eloise Hall as interim head of national accounts
She will be covering Francis Cassidy’s role as she goes on maternity leave. This is the second time Hall has covered Cassidy’s role for the same reason.
Hall (pictured) said: “I took on a lot of the responsibility last year, got my practice, and now I’ve officially been given the interim position this time around,” adding that she intends to focus on nurturing the intermediary relationships Cassidy had already formed, and work on Kensington’s strategy over the next two years.
This year, she will focus on the lender’s plans to cater to borrowers with adverse credit, long-term fixes and green mortgages.
Last November, Kensington partnered with Rothesay to deliver mortgages with fixed terms up to 40 years.
Hall said: “I think a lot of it will be around maintaining that momentum… and continuing to enhance Kensington’s strengths, which include things like fast service, innovative product ranges.
“We will support our partners and make sure we deliver, as well as things like flexible and creative criteria.”
“Kensington’s approach isn’t to just regurgitate our lenders criteria, or just change our interest rates in the marketplace. We like to find gaps in the market to expand the market and the business. We look at individual customer needs, and try and build a product around them,” she added.
Hall said Kensington would also reinforce itself as a thought leader to add value both to its own, and to a broker’s business.
She said: “We had a fantastic end to our year where we’ve doubled our business. It’s just about continuing to do that we’ve got some really big growth plans.
“To get there, we need to be making sure we’ve got some fantastic working relationships with our intermediaries. I’m proud to lead and deliver that support.”
Starling Bank raises £130.5m for acquisition war chest with eye on mortgage lenders
The fundraise was at a pre-money valuation of £2.5bn, with Goldman Sachs, Fidelity Management and Research Company, Qatar Investment Authority, Harold McPike and RPMI Railpen all participating in the round.
The bank said that the funding would be used to “continue our growth” and “build a war chest” for acquisitions. A Starling Bank spokesperson said that it was looking at a “number of potential targets”.
The spokesperson said: “We are pursuing a targeted merger and acquisition strategy focusing on selected lending originators; that may include mortgage lenders.”
The bank now has a surplus capital of nearly £400m.
Last year, the bank acquired Fleet Mortgages in a £50m transaction, making it the sole funder of the lender’s future originations.
Fleet Mortgages in turn would be able to access Starling’s deposit customer base via the deal.
It marked Starling’s entrance into the mortgage market, and at the time said it was part of its plans to grow its lending through mergers and acquisitions and forward-flow arrangements, where it will purchase loans originated by other providers.
The bank was also reported to be interested in acquiring Kensington Mortgages’ platform earlier this year, along with Barclays, M&G and Pimco.
The Mortgage Lender hires Kensington’s Kirby as head of specialist distribution
Kirby (pictured) joins the lender from Kensington Mortgages, where he first worked as an account development manager then key account manager for a total of four years.
He has over 10 years’ experience in the mortgage industry and has worked in the specialist sector for six years.
Before than he worked at Fleet Mortgages as business development manager (BDM) for a year and, prior to that, was at Coventry Building Society where he started his career in the industry. There he was customer service assistant before moving up to senior mortgage adviser, then telephone BDM.
At TML, Kirby will have the task of supporting intermediaries as the lender grows its business. He will oversee specialist distributors and work with broker partners, focusing on those in the new build and buy-to-let sectors.
Steve Griffiths, sales director at TML, said: “With a strong background in specialist lending and an excellent reputation in our sector, Chris will be a valuable addition to the team at TML.
“Our business continues to grow through investing in our people, technology and proposition so that we can help more customers; Chris will play a key role in these expansion plans.”
Kirby added: “It’s a great time to be joining TML; there is ambition to grow in a way that benefits both the mortgage market and consumers.
“I joined TML because I wanted to work with a mortgage lender that covers all of the market; this new opportunity affords me the ability to make a difference through working with innovative, talented colleagues and increasing engagement and awareness of the valuable products that TML offer.”
Shared ownership predicted to grow but more awareness needed – Just Mortgages
Lenders and housing associations speaking on panel sessions at Just Mortgages’ inaugural new build and affordable housing event said brokers should prepare for an increase in shared ownership enquiries, especially as Help to Buy is due to end next year.
Furthermore, they said housing associations are expected to build more shared ownership houses and increasing numbers of lenders are predicted to enter the space.
However, panellists said there needed to be more consumer awareness and understanding of shared ownership, so brokers had a key role to play in educating borrowers.
Panellists also noted that there were multiple affordable housing options which borrowers should consider, including Deposit Unlock, private equity loan schemes, the mortgage guarantee scheme and First Homes scheme.
Lenders speaking on the three panel sessions during the day included Barclays, Halifax, Nationwide, Santander, Leeds Building Society, Skipton Building Society, Kent Reliance and Kensington Mortgages.
Housing associations and property providers on the panels included Sage Housing, SO Resi Partnerships, NU Living and Swan Housing.
John Doughty, financial services director at Just Mortgages New Build Division, said: “Lenders and brokers are getting less Help to Buy enquiries from customers as restrictions were introduced a year ago and the scheme nears the end of its shelf life. Instead, we are talking to more people wanting to know if they are eligible for shared ownership.
“I would like to take this opportunity to thank all the lenders, housing associations, property providers and developers for their participation in our event during what was a thought-provoking and successful day.”
Shared ownership currently accounts for two per cent of housing stock and the government has pledge funding for up to 90,000 new shared ownership properties over the next five years.
Base rate will hit two per cent in the next 12 months – Maddox
The Russian invasion of Ukraine and its effect on the global economy, and in particular on inflation, was discussed at length by the committee members.
Inflation continues to rise, increasing from 5.4 per cent in December to 5.5 per cent in January. The February report expected inflation to peak this April at around 7.25 per cent and then start to reduce, however the invasion of Ukraine has led to further large increases in energy prices and other commodities such as food prices. This in turn means that inflation is now expected to reach eight per cent in Q2 2022 and potentially climb even higher towards the end of this year when Ofgem’s utility price caps could again be increased.
Looking further ahead, inflation is expected to decrease materially once energy prices stop rising, however the inflation target of two per cent not expected to be met for over two years.
While UK GDP in January was stronger than expected, consumer confidence has fallen due to the squeeze on household disposable incomes.
The latest ONS figures continue to show unemployment decreasing, with figures down to 3.9 per cent in the three months to January. However, the squeeze on incomes and cost of living is anticipated to drive up unemployment in the coming years.
||Forecast in rates
||One months’ time
||Three months’ time
||Six months’ time
||12 months’ time
||Two years’ time
||Three years’ time
|Bank of England Base Rate*
|Two-year fixed rate**
|Three-year fixed rate**
|Five-year fixed rate**
|10-year fixed rate**
* Using OIS Curve [rounded to 2dp]
**Based on the swap curve
Due to rising inflation, markets are expecting a much steeper incline in the Bank of England base rate with large increases throughout 2022, exceeding the one per cent mark within three months, sooner that initially thought. Markets also expect that the bank rate will increase to two per cent within the next 12 months.
Market participants also expect the two-year swap rate to increase steadily over the next year, with the three-year swap rate flattening in the near-term. However, the two and three-year swaps are anticipated to drop back down in two and three- years’ time. The five and 10-year swap rates have slowly been increasing, although they are seen to be relatively flat over the next six months, however markets see these rates dropping slightly in the next one to two years.
UK securitisation market
Due to the recent geopolitical tensions between Ukraine and Russia, there has been a high degree of volatility in the markets over the last few weeks. Issuances into the primary market have been very low, with issuers monitoring the situation and waiting to bring transactions as soon as a viable window opens.
So far in 2022, just over £13.3bn of UK residential mortgage backed securitisation (RMBS) paper has been placed into the market compared to £6.8bn at this time last year and £4.6bn this time in 2020.
The lowdown on alternative home ownership options – an explainer
Mortgage Solutions has spoken to providers who are working or planning to work with mortgage advisers to help them place clients struggling to buy a home through the mainstream routes.
Generation Home is a mortgage lender which was launched by husband and wife Will Rice and Sophia Guy-White last year through Legal and General Mortgage Club. It expects to be available to all brokers this year.
It offers a product like the joint borrower, sole proprietor (JBSP) mortgage which allows family and friends of a homeowner to act as a guarantor and make optional payments towards a mortgage.
People who join the mortgage can choose to stop making payments at any time and can take themselves off before the term ends.
It also offers a ‘DIY Help to Buy’ which allows people to contribute to a borrower’s deposit in return for equity.
When the property is resold, Generation Home acts as an agent to give everyone their share.
The firm is backed by institutional funding, including Natwest.
It recently launched 95 per cent loan to value (LTV) products with rates beginning from 3.78 per cent for a two-year fix with a £999 fee.
It will accept employed and self-employed borrowers, those receiving pension, rental and investment income as well as commission or overtime.
Adam Ginty, head of marketing, described Ahauz’s product as a “private version of Help to Buy”.
Launched in September 2021, Ahauz will lend against existing and new-build properties in England and Wales. Ginty said there was a growing number of lenders accepting the Ahauz loan as part of a borrower’s deposit.
The loan has rates between 6.99 per cent up to 9.99 per cent depending on property value, and there are no early repayment charges (ERCs). Repayments are made on an interest-only basis, and borrowers must demonstrate how they will pay off the loan which matches the term of the mortgage.
The initial rate is fixed for five years before it reverts to a standard variable rate. Borrowers are able to refix if they choose.
Ahauz has worked closely with brokers to help shape its proposition and has partnered with some advisers since its launch.
Borrowers must have a minimum income of £25,000 and Ahauz does not lend against buy-to-let, houses in multiple occupation (HMO) or semi-commercial properties.
It will lend up to 25 per cent of a property’s value and borrowers must put in a minimum of five per cent.
If the value of a property changes, the value of Ahauz’s share fluctuates to reflect this.
Even is a second charge lender which provides interest-free equity loans. It was launched by Matt Robinson and James Turford, co-founders of estate agency Nested last year.
It describes its loan as similar to Help to Buy but is only available on pre-owned properties. Even can provide loans up to twice that of a buyer’s deposit up to a maximum of £100,000.
Even does not charge interest because in return for the loan, it holds a stake in the property. The share changes along with the property’s value and is factored in once the loan is repaid.
Even caps the profit made on its share by twice the amount of the original loan if this is repaid within 10 years. The limit rises to three times if the loan is paid back after 10 years.
There are no early repayment charges. The owner also keeps any increase in value resulting from structural renovations.
Even aims to serve first-time buyers who do not have family help and would prefer to buy a pre-owned home in England or Wales.
It has a private financing facility to originate its loans. This is secured for the customer, so the loan is protected should anything happen to the firm.
It is currently working with Kensington Mortgages as a first charge lender to deliver its loan and hopes to partner with more first charge lenders to broaden choice.
The term of the loan fits with the first charge mortgage and each month, the customer pays off some of the capital loan amount..
It does not accept people with adverse credit, individual voluntary agreements (IVAs) or county court judgments (CCJs). It requires borrowers to have at least a five per cent deposit and be in the market for a mortgage that is 4.5 times their income. The minimum income allowed is £20,000 and the first charge mortgage must be between 75 and 90 per cent LTV.
Even’s contribution combined with the customer’s deposit cannot exceed more than 25 per cent of the property value.
Proportunity is an intermediary-only lender run by co-founders Vadim Toader and Stefan Boronea.
It offers shared equity second charge mortgages aiming to boost borrower’s deposits up to 95 per cent LTV of a first charge mortgage when combined.
It has a Proportunity Home Index (PHI) algorithm to help buyers to find properties which are “fair valued or undervalued”, and these are the homes it will lend against.
It is designed to be similar to the government’s Help to Buy scheme but with fewer restrictions. Loans can be used on existing homes as well as new builds, and borrowers do not need to be first-timers. They will own 100 per cent of their home.
The interest rate of the loan varies between 5.99 per cent and 8.49 per cent, depending on circumstances and property type.
It said its rate was comparable to Help to Buy when factoring in the condition that the government scheme’s loan does not need to be repaid for the first five years.
“Having said that, our cost needs to be compared with the premium that a customer is paying when buying a new build,” Toader said.
Proportunity can provide a loan up to six times income with a five per cent deposit.
It accepts those with good credit scores who are either employed, self-employed or key workers.
It launched in 2018 and its debt fund includes a range of private and institutional investors. It recently expanded its funding facilities to be able to lend £100m by the end of 2023.
The firm’s growth and salaries are funded through venture capital partners while debt funding lines are used exclusively for lending from institutional lenders such as asset managers and commercial banks.
The loan term matches the term of the main mortgage and has a fixed rate for the first five years. Customers can refix after five years.
Monthly payments are interest-only. If the property value increases or decreases, the buyer and Proportunity share the gain or loss.
It cannot be used for buy-to-let or houses in multiple occupancy (HMO) purchases but it does permit lodgers and allow borrowers to have buy-to-let investments in the background.
Proportunity accepts both old and new builds, flats and houses. It will run all properties through its proprietary technology to assess its ‘credit worthiness’. If it finds the property is significantly overpriced, it will not lend.
It also does not lend on properties sold at auction, ‘cash buyers only’ homes, or shared ownership properties.
Wayhome aims to cater to “reluctant renters” who can afford mortgage payments but are unable to raise a deposit.
It is gradual homeownership proposition, similar to shared ownership, which allows customers to increase their equity in a property from as little as £50 at a time.
Cal Graham, head of marketing, said: “Obviously, if you’re only going to buy £50 of your home, your rent is not going to come down very much. The idea is if you’ve got a bonus from work, and you have a couple of thousand pounds, you might put that into your home.”
Wayhome acts as a cash buyer for a property then charges the customer market rent on the share it owns. Borrowers pay legal fees, stamp duty and surveyor fees relative to the share they own.
Any additional shares purchased will be valued at the current price of the home and Wayhome does not charge fees to staircase.
It also splits maintenance costs with the tenant depending on the share it owns, meaning for a home where Wayhome owns a 90 per cent stake, it pays for 90 per cent of repair costs.
Borrowers with household incomes between £24,000 and £140,000 will be considered and it lends to those aged between 21 and 55.
Deposits between five and 30 per cent are required at a minimum value of £7,500.
It will lend on houses or flats, but not new builds, with values between £150,000 to £500,000.
It does not accept borrowers with adverse credit, but it does consider those who are self-employed with one year of accounts. It is also Shariah-compliant.
Wayhome will only purchase homes where it can make a four per cent yield on rent. It caps how much it allows homeowners to pay in rent to keep it affordable.
It is preparing to build relationships with brokers to distribute its product and so far, has approached speciality advisers. Wayhome said it will offer “industry-standard” proc fees of 3.5 per cent.
Tembo is a mortgage broker headed up by co-founder and owner Richard Dana. It acts as a marketplace for family boost mortgages, equity loans and gradual ownership schemes. as well as traditional mortgages and protection.
It will connect clients to alternate routes to home ownership including the aforementioned companies.
Additionally, due to mortgage adviser interest, it recently launched a partnership platform with independent financial advisers (IFAs), brokers and equity release providers to place cases which have been denied due to affordability or deposit issues.
Dana said: “Our partners prefer not to advise on these products given the time and complexity in arranging them. If they can arrange three standard mortgages in the same time it takes to co-ordinate one complex family mortgage or equity loan, for many mortgage advisers it simply makes more financial sense to refer to a specialist and share in the commission.”
Tembo raised its initial investment from Founders Factory, a digital venture investor. It has since raised £2.5m investment directly from Aviva Group.
Kensington Mortgages announces £1.3bn in additional funding
The non-bank specialist mortgage lender said the increased capacity would help it lift under-served borrowers onto the property ladder while bolstering originations for owner-occupied and buy-to-let (BTL) mortgages.
The boost, up from £1.3bn, includes £800m in extra capacity for Kensington’s existing Sloane Square warehouse facility for residential mortgage originations (now valued at £2.1bn), and a new £500m warehouse facility to fund the call of two earlier securitisations (Finsbury Square 18-2 and Finsbury Square 19-1).
Alex Maddox (pictured), capital markets and digital director for Kensington Mortgages, said the lines would “provide funding capacity for new loans and allow Kensington to grow even faster, despite volatile market conditions. We’ve raised just over £16bn of funding through warehouse lines and securitisations since 2015.”
“Our aim is always to help underserved borrowers,” he added. “We look beneath the surface and consider complex and multiple income sources and help those who otherwise may struggle to own a home. The business is seeing strong growth accompanied by stable returns and this is reflected in the strong appetite amongst investors for our securitisations.”
Equity loan lender Even partners with Kensington Mortgages
The Even loan works along similar lines to the Help to Buy scheme, but is open for those looking to buy a pre-existing, rather than new build, property. It offers equity loans of up to double the value of a first-time buyer’s deposit, up to a maximum of £100,000.
Instead of charging interest in a traditional way, Even then takes a share in the profit made on the property when the borrower pays the loan back. If the property has fallen in value, then so too does the amount the borrower has to repay.
Kensington is the first lender to partner with Even, which launched last year and is the brainchild of Nested co-founders Matt Robinson and James Turford. It has already joined the Intermediary Mortgage Lenders Association (IMLA) as an associate member.
Turford, COO of Even, said the launch would open up the potential of home ownership to a whole generation of would-be buyers, allowing them to get onto the property ladder sooner.
He continued: “What has especially impressed us about Kensington was not only their amazing track record as specialist lender of the year, but also the way in which they embrace innovation, and moved quickly to follow through on the promise of helping those who would otherwise have no option to buy.”
Craig McKinlay, new business development director at Kensington, added: “Kensington is delighted to be partnering with Even. Their innovative solution to help generation rent get on the housing ladder fits perfectly with Kensington’s goal as a specialist lender to help those who struggle to get a mortgage from mainstream lenders”
Even is one of a host of new equity lenders in the market, which includes the likes of Proportunity and Ahauz.
TML appoints Kensington’s Ian Hughes as head of product
Hughes joins from Kensington Mortgages where he worked for 12 years, most recently as head of product development.
He has experience in the financial services industry with roles where he had the responsibility of developing mortgage products and others such as credit cards, personal loans and secured loans.
Before he worked at Kensington Mortgages, Hughes was at HFC Bank for almost seven years as its product manager.
At TML, Hughes will be tasked with managing product development, and creating customer propositions to take the lender through its next phase of growth.
Hughes said: “It’s an exciting opportunity to be joining TML and the outstanding team that brings it to life. I believe in the goals and ambitions of the business, and TML has already had a big impact in the specialist lending market, having brought truly new and innovative products to market.
“TML is growing and I’m looking forward to helping drive the next phase of its journey.”
Steve Griffiths, sales and product director at TML, added: “Ian has a huge amount of experience in mortgage product development and we’re looking forward to the innovation and leadership that he will bring to the TML team.
“It’s incredibly important to us that we are consistently looking to strengthen our product offerings and refresh our customer propositions, and Ian’s expertise will help us to achieve this.”