Mortgage fees on the rise – Moneyfacts
‘The year the mortgage market moved’, a whitepaper from Moneyfacts, found this was an uptick of £81 since March last year.
This was a higher than normal increase, as average fees fell by £22 to £565 in March 2018 on an annual basis, then by £2 in March 2019 to £563. By March 2020, the average mortgage fee stood at £574.
Variable mortgage fees have increased by £97 since March 2020, while fixed fees have risen by an average of £76.
Moneyfacts found that while fees for variable rate products were still rising, fixed rate product fees had been relatively flat since the end of last year.
Lenders continued to prepare for the worst case scenario, the report found, as evidence showed pricing had been influenced by the risk of default.
This was displayed by the lack of change in rates for mortgages with a loan to value (LTV) of 60 per cent or higher from January 2019 to March 2020. This reflected the stable market conditions, Moneyfacts said.
By April last year, a month into the pandemic, there was sharp rise in the rate differential at 90 and 95 per cent LTV.
Throughout 2020, rate differentials at 75 and 85 per cent LTV was also volatile as lenders worked out where to attribute risk. This coincided with national lockdowns, indicating uncertainty among lenders at the time.
There was another rise in rates across all tiers during spring, when the mortgage guarantee scheme was launched.
However, this was temporary and differentials eventually settled “as providers learned from the experiences of the early stages of the pandemic and were better able to quantify the likelihood of default into a clearer pricing strategy”.
Standard variable rates (SVRs) declined over the course of the pandemic along with the record-low Bank of England base rate.
Average SVRs dropped from 4.90 per cent at the beginning of March 2020 to 4.71 per cent by the start of April and 4.44 per cent by the beginning of August.
By December, average SVRs fell to their current and lowest-ever rate of 4.41 per cent, a 0.49 per cent decrease on pre-pandemic levels.
First-time buyers and mortgage availability
High LTV availability has not returned to pre-pandemic levels despite a sixfold increase in first-time buyer demand, Moneyfacts said.
The whitepaper showed that at the end of May 2021, there were 38 per cent fewer 90 per cent LTV mortgages, and 53 per cent fewer at 95 per cent LTV compared to February last year.
Despite this, 90 per cent LTV mortgages have recovered faster than their 95 per cent counterparts.
Mortgages at 90 per cent LTV fell until October 2020, with a 93 per cent reduction compared to March 2020. By May 2021, product numbers were down 63 per cent.
However, a year on from the pandemic, 95 per cent LTV mortgages are only at two per cent of their pre-Covid level.
The increase of five products at 95 per cent LTV in April this year to 122 by May was driven by the mortgage guarantee scheme. Over 60 mortgages remain under the scheme.
The stamp duty holiday spurred increased demand for first-time buyer mortgages.
When the initiative was announced in July last year, first-time buyer searches increased by 6.7 times compared to February 2020.
Remortgage demand surged after the announcement of the lockdown in March last year, with searches doubling on February.
Following this, demand for remortgages declined steadily until July 2020 before stabilising then falling again in December. Searches have not returned to levels seen in March 2020 since.
The whitepaper also found switching borrowers at low LTV tiers were able to make savings. With the introduction of sub-one per cent products at 60 per cent LTV this year, borrowers within this band could benefit from an average rate saving of 0.41 per cent as of April.
Michelle Monck, head of digital at Moneyfacts.co.uk, said: “Our latest white paper, ‘The year the mortgage market moved’, analyses the impact that national lockdowns and government intervention have had on the mortgage market during the past 18 months. Our analysis identifies the difference in motivations and response to the series of national lockdowns between borrowers and lenders. Borrowers have been fast to react to the changing situation during the series of national lockdowns.
“Lenders, as should be expected, have been more cautious.”
She added: “While the effects of unwinding the furlough scheme and the results of the removal of Coronavirus restrictions in the UK are not known, lenders will continue to act with caution.
“This shows lenders pricing in for potential default risk and this strategy of cautiousness is also manifesting itself right now as lenders offer the lowest risk borrowers at 60 per cent LTV record-breaking fixed rates of less than one per cent.”
Lenders expect mortgage defaults to rise in Q3 – BoE
The results of the Bank of England’s (BoE) credit conditions survey are measured in net percentage balances between -100 and 100, with responses dependent on lender market shares.
Defaults dipped during the current quarter, with 4.0 per cent of lenders reporting a rise in Q2 compared to 21.3 per cent in Q1. Looking ahead, a net balance of 19.5 per cent of lenders predict this will increase, coinciding with the withdrawal of numerous Covid-19 support measures.
The average credit quality of those taking a mortgage is set to weaken too, lenders predicted.
Over the next quarter, the credit quality of borrowers is expected to decline to –0.6, compared with the actual reading of 16.1 in Q2.
Purchase activity nosedive
The demand for purchase and remortgage lending rose in Q2, with response scores of 81.1 per cent and 22.5 per cent respectively.
Remortgage demand is expected to hold up in Q3, with a positive lender score of 11.8 per cent. Purchase demand is set to decline significantly, according to a net balance of –48.7 per cent of lenders.
Buy-to-let purchase demand will also fall from a positive response score of 49 in Q2 to a prediction of –6.7 in Q3.
Lenders expect the availability of mortgages to remain fairly stable in Q3, with a prediction reading of 16.5 per cent. This is compared to the 39.1 per cent of lenders who reported an improvement in the availability of secured lending.
This is likely due to the rapid return of high loan to value (LTV) mortgages over the first few months of the year, which has since levelled off.
The changing economic outlook will affect provision of mortgage lending the most, according to 25.4 per cent of lenders.
Competition on rates is expected to continue, with lenders anticipating narrowing spreads relative to the Bank Rate or the appropriate swap rate in Q3.
Andrew Montlake, managing director of Coreco, said: “It’s curious that banks expect defaults to increase during Q3 and at the same time supply also to increase, as they engage in a price war. Banks know that there are a lot of struggling borrowers out there, but equally have to lend to meet their targets.
“It’s a hugely delicate balancing act of lending while accepting that defaults are likely to nudge up.”
Richard Pike, Phoebus Software sales and marketing director, added: “As interesting as this latest credit conditions survey is, the market is changing almost daily. The report shows that there were few changes in Q2 compared to Q1, but that lenders expect Q3 to differ in all four categories.
“The upshot is that this is an unpredictable market and until the end of at least Q3 it is likely to remain so. By then furlough will have ended and the vast majority of the population will be fully immunised. Many people will be taking stock as we return to normal, looking at their finances and, for many, quality of life. The question now is one of long-term confidence.”
Mortgage lenders offering larger loans but product options tighten – MBT
Analysis by Mortgage Broker Tools (MBT) showed that in June, the largest average loan size available to all borrowers was £243,250. This was a four per cent uptick on the maximum that could have been offered in January.
However, the percentage of lenders able to meet this loan amount fell from 80 per cent in January to 73 per cent in June.
For first-time buyers, the largest average loan rose 13 per cent to £261,290 in June primarily driven by the return of high loan to value (LTV) products. However, while 86 per cent of lenders were able to provide this amount in January, just 72 per cent were able to do so in June.
The trend of fewer lenders willing to provide maximum loans was seen across all borrower types.
For home movers, the maximum loan available increased from £285,860 in January to £292,149 in June but over the same period, the proportion of lenders able to meet this dropped from 82 per cent to 74 per cent.
For the self-employed, the largest loan sizes grew from £221,400 at the start of the year to £233,300 last month.
Over the six-month period, the percentage of lenders meeting this requirement for the self-employed fell from 71 per cent to 69 per cent.
For remortgagors, the average loan size actually decreased from £192,065 to £188,500. However, there was still a decline in lenders providing this amount as this dropped from 86 per cent to 83 per cent.
Tanya Toumadj (pictured), CEO at Mortgage Broker Tools, said: “Even though the lenders are loosening restrictions and offering larger loan sizes, borrowers are finding it harder to secure the loan size they require, and we’re seeing fewer lender options available than we did at the start of the year. This isn’t because borrowers are asking for more – the average requested loan size hasn’t changed. So, what’s happening?
“As we emerge from the pandemic and lenders evolve their criteria and risk appetite, we’re seeing an increasingly diverse approach to affordability calculations and this means borrowers, with their own unique set of circumstances, are able to secure very different loan sizes from one lender to the next. The good news is that the average maximum loan available is higher now than the start of the year and, while the number of affordable lenders is falling, there are still plenty of affordable options – if you know where to look.
“Comprehensive and accurate research can prove the difference between a mortgage enquiry successfully progressing to completion or falling at the first hurdle.”
Negative equity risk makes lack of high LTVs on new builds ‘no surprise’
In turn, this is affecting the delivery of new homes, Barratt Homes has said. In its last update, the house-builder said buyers needed access to mortgage finance in order for developers to continue increasing housing supply.
However, the difficulties with valuing new builds amid rising property prices has made lenders reluctant to open up to this part of the market.
The government-backed 95 per cent mortgage guarantee scheme does not include new-build properties, nor do many of the 95 per cent LTV products launched independently by lenders.
Iain Sillett, mortgage and protection adviser at Right Mortgage, said there had been “multiple enquiries,” to his firm’s website from people wanting to buy new homes with a five per cent deposit, unaware of the scarcity of available products.
He said this was likely restricting the new-build customer base, as along with changes to the Help to Buy scheme, “a home mover or someone starting over in life who previously owned a property has no prospect of owning a new-build property unless they have a 10 to 15 per cent deposit”.
Sillett added: “Hopefully we will see a change of policy from the lenders and the removal of new build restrictions on these products.”
Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert, said the last time he checked, there were only a handful of lenders operating at the 95 per cent lending tier with options only opening up slightly at 90 and 85 per cent LTV.
He did understand why lenders would be hesitant towards new-build properties with the market being so active. In many cases, this has led to homes across the board seeing price inflation due to a lack of supply.
He said: “Recent hikes in property prices, for all property types old and new, based on clients looking to beat the stamp duty holidays, has led to a wave of down valuations and new-build properties are following the same trends.
“It’s no coincidence or surprise that lenders are cautious in the high LTV bracket, and availability of products show this.”
He said it was also difficult for lenders to confidently find comparables for new builds when valuing, because the data was not always available. This was making the possibility of down valuations and future negative equity a threat.
Dhoffer suggested that down valuations would continue this quarter until the demand for properties returned to normal along with the ending of the stamp duty holiday.
He added: “We could see a realignment of house pricing from 1 October, which will be between 5 to 8 per cent reductions in some areas nationally.
“Then, we’ll see more products come to market in the high LTV bracket, which in turn will help those clients with smaller deposits.”
The market does appear to be slowly opening up, however, with Newcastle Building Society recently becoming the first lender to offer 95 per cent LTVs on new builds through Deposit Unlock, an insurance-backed scheme established by Gallagher Re.
Other options still available
Dhoffer said: “Until then, Help to Buy and shared ownership still remain viable options for those clients wishing to act now. But the question is; do you buy now with a higher deposit, use one of the schemes with a lower deposit or wait till later in the year when there may be more product choice and lower deposit without a scheme?”
Lilla Dilliway, director at BlueWing Financials, said she had not seen any borrowers who were put off by the fact they could not get a standard mortgage for a new build at 95 per cent LTV. Instead, she noticed buyers with smaller deposits were naturally opting to use schemes to help them afford the usually higher-priced homes because it is often the only way for them to purchase.
“I’m sure that there are people who would like to, and could afford to, buy a new-build property with a five per cent deposit outside a scheme, but we haven’t really come across many of these customers,” she added.
This was also the case for Adam Wells, co-founder of Lloyd Wells Mortgages, who said he was “surprised,” that Barratt Homes had made the link between the construction of new homes and mortgage availability at all.
“The majority of clients we have who are looking to purchase a new build property use the Help to Buy scheme. The ones who do not are lucky enough to have large deposits already,” he added.
Over-55s finding it harder to secure desired mortgage than self-employed – MBT
In April, data showed there was at least one lender able to provide the loan requested by 70 per cent of self-employed borrowers compared to 64 per cent for those aged over 55.
Nine per cent of borrowers aged 55 and over were unable to get a mortgage of any size, while this was the case for two per cent of the self-employed.
Overall, self-employed borrowers and those aged 55 and over were having a harder time securing their requested mortgage loans in April. Across the market, lenders were able to fulfil the needs of 75 per cent of borrowers.
Loan size gap
The difference between loan sizes available to customers aged 55 and over was larger than the spread available to the whole of the market and to the self-employed.
The largest loan available on average to a customer aged 55 or over was £287,540 while the smallest loan was £147,372 – a spread of £140,168.
Meanwhile, the largest loan available to a self-employed customer was £231,206 and the smallest loan of £110,552, representing a difference of £120,654.
For the whole of market, the largest loan available on average was £245,890 and the smallest loan was £145,742, a disparity of just £100,148.
Different factors at play
Tanya Toumadj, CEO at Mortgage Broker Tools, said: “The latest MBT Affordability Index shines a light on the challenge that mortgage customers aged 55 and over face in securing the loan size they want.
“There are a lot of different factors at play here. Obviously maximum age at the end of the mortgage term, and anticipated retirement age play a significant role in how much customers will be able to borrow and lenders often have different criteria in these areas, but there are also other considerations.”
“As customers grow older, in general, they also become wealthier and many will have additional sources of income to consider from investments and pensions.
There’s a huge variation in the way that lenders underwrite these additional income sources and it means that the choice of lender can make a very significant difference to how much a customer aged 55 or over is able to borrow,” she added.
Toumadj said: “We have spoken before about the importance of whole of market research and it’s even more apparent for this group of customers.
“Every broker in the country will have a number of clients who are aged 55 or over and, if they are not using technology to research all of the affordability options, they are not giving their clients the strongest chance of achieving the loan they deserve.”
More first-time buyers securing desired mortgages in February – MBT
This was an improvement on the mortgages available to first-time buyers before the pandemic hit the property market. In February last year, 71 per cent of lenders were able to meet the borrowing needs of this segment.
Unsurprisingly, it was also up from a low in May when the effects of Covid-19 led to a restriction in product availability for first-time buyers. At this point just 59 per cent of lenders were able to fulfil first-timers’ needs.
The average maximum loan made available to those buying their first home also rose to £237,500 up from a record low of £230,555 in January.
Although fewer lenders were able to serve the requirements of first-time buyers a year ago, the maximum loan available was down compared to the average of £256,915 in February 2020.
Those remortgaging in February were given an average of £188,000, down from £192,065 the month before. The proportion of lenders able to meet their borrowing needs also dropped to 84 per cent from 86 per cent.
For home movers, the average maximum loan provided by lenders was £237,803, a marginal decline from £239,995 the previous month. The proportion of lenders willing to meet their loan requirements remained flat at 81 per cent compared to 82 per cent in January.
Tanya Toumadj (pictured), CEO at Mortgage Broker Tools, said: “First-time buyers have had reason to be cheerful in recent weeks and the launch of the mortgage guarantee scheme will open up new options for potential buyers who have only a small deposit.
“However, it’s important to remember that any buyers hoping to borrow 95 per cent loan to value (LTV) under the scheme will need to demonstrate that they can afford the loan and so the state of the affordability landscape will play a big role in the success of the initiative.”
She added: “This is something that we’ll be monitoring closely with the MBT Affordability Index over the coming months.”
Mortgage availability reaches 11-month high – Moneyfacts
The Moneyfacts UK Mortgage Trends Treasury Report showed this was also the highest four-monthly increase recorded since 2007.
This was up from 2,893 mortgages available in January.
The biggest change was seen in the 90 per cent loan to value (LTV) tier which almost quadrupled to 248 since October. On a monthly basis, the availability of low deposit products rose from 160 in January.
Mortgages are also staying on the market for longer, following a period of limited edition deals and short term tranches to manage service levels.
In November, December and January, the shelf life of all mortgages was 28 days whereas this increased to 40 days in February, showing signs of a return to stability in the sector.
The average two-year fixed rate for all LTVs increased for the seventh month in a row, while five-year equivalents rose for the second consecutive month.
The rate rises were very nominal however, at just 0.01 per cent and 0.02 per cent to 2.53 per cent and 2.73 per cent respectively.
Borrowers with smaller deposits were a little more fortunate, as average rates for 90 per cent LTVs dropped by 0.09 per cent and 0.07 per cent for a two-year fixed and a five-year fixed respectively.
The average rate for a two-year fixed mortgage at 90 per cent LTV stands at 3.56 per cent, while a five-year fixed equivalent is 3.72 per cent.
Eleanor Williams, spokesperson at Moneyfacts, said: “Recent HMRC data reflects the boom in activity in the mortgage sector at the end of 2020, with stamp duty transactions in the final quarter of last year surging to over 40 per cent higher than the previous quarter, as those rushing to take advantage of the temporary holiday in stamp duty and those unleashed after the enforced shutdown flooded the market.
“This is echoed in our data where, following four months of improvement, at 3,215 products, overall choice has now returned to the highest level recorded since March 2020.”
Low deposit mortgage availability at six-month high – Moneyfacts
According to a Moneyfacts report, the number of low deposit mortgages almost doubled from 72 to 160.
However, those who require a 90 per cent LTV mortgage still have fewer options than those with more money to put down. Borrowers who qualify for an 85 per cent LTV mortgage have 439 products to choose from and 75 per cent LTV borrowers have 629.
In total, there are currently 2,893 residential mortgages on the market, the most recorded since April 2020 when there were 3,192 mortgages available. This is up slightly from the 2,782 on the market last month.
Rates on the up
The average rate for a two-year fixed mortgage across all LTVs rose for the sixth month in a row by 0.03 per cent to 2.52 per cent, the highest average rate since January 2019.
The average two-year fixed rate is also 0.08 per cent higher year-on-year and a 0.53 per cent rise on the record low seen in July. The record low rate coincided with a period when there were just 70 high LTV products on the market, where higher rates are typically seen.
The average rate for a five-year fixed across all tiers also increased in January from 2.69 per cent to 2.71 per cent. However, this was lower than the average rate of 2.74 per cent during the same month last year.
As well as returning to the market to serve borrowers with a smaller deposit, lenders also appear to be treating those in need of a 90 per cent LTV more favourably by reducing borrowing costs.
The average rate for a two-year fixed mortgage at this tier dropped from 3.79 per cent to 3.65 per cent over the month while a five-year fix fell from 3.92 per cent to 3.79 per cent.
Eleanor Williams, spokesperson at Moneyfacts, said: “Following the sharp drop off in availability in 2020, it is positive to see that we are beginning 2021 with the total number of mortgage deals rising for the third consecutive month.
“Not only is the increase in product choice a positive for borrowers, but it seems that a measure of competition may have started to return to some sectors as well.”
She added: “This improvement in options for mortgage borrowers has occurred at a time when high levels of borrower demand have been fuelled by those hoping to benefit from the stamp duty holiday and by those who re-evaluated what they want from a home and were part of the unleashed demand that arose after the first lockdown in 2020.”
Mortgage choice widens with largest increase in six years – Moneyfacts
Compared to the previous month, there were 378 more deals on the market.
This included the return of high loan to value (LTV) mortgages, as the number of 85 per cent LTV products rose from 344 to 396 and 90 per cent LTV deals increased to 88 from 56.
This was the highest number of deals seen across these tiers since March and June respectively.
Although some lenders have come back into the market with deals for those with a 10 per cent deposit, the options for those with a smaller deposit of five per cent has fallen. Moneyfacts recorded eight mortgages at 95 per cent LTV in December, down from 12 last month.
Overall, product availability is still 44 per cent down on the 4,966 that were on the market this time last year, and significantly lower than the 5,222 mortgages on the market in March.
Eleanor Williams, spokesperson at Moneyfacts, said: “Echoing last month’s trend, the number of available mortgage deals has continued on an upwards trajectory, with a further 378 deals on offer now compared to November, the largest month-on-month increase in availability since November 2014.
“This growth may be a reflection of lenders reacting to not only the level of pent-up demand from those looking to move following the first lockdown, but also the flood of would-be borrowers hoping to complete their new mortgage in time to benefit from the temporary stamp duty land tax holiday.”
The average rate of two-year fixes has also gone up, with the return of high LTV deals bringing the average to its highest point in five years.
At 85 per cent and 90 per cent LTV, rates increased on a monthly basis by 0.05 per cent and 0.03 per cent to 3.17 per cent and 3.79 per cent respectively.
According to Moneyfacts, these were the highest rates recorded since January 2015 and February 2015 respectively.
Across all LTVs, the average rate for a two-year fixed stood at 2.49 per cent, a monthly rise of 0.06 per cent and an annual increase of 0.05 per cent.
Borrowers who want to fix for a slightly longer period will be better off than they were previously, as the current average rate for these mortgages across all LTV tiers declined 0.01 per cent to 2.69 per cent since November and dropped 0.05 per cent annually.
However, the difference between the average two-year fixed and five-year fixed rate shrunk to 0.2 per cent in December, the smallest gap since June 2013 when it was 0.17 per cent.
Williams said: “Lenders review their rates in light of many factors, and these increases may be a reflection of the fact that, while lenders are looking to cater to various borrower types with varying levels of equity or deposit, they also need to consider the still uncertain economic outlook in relation to new lending and need to protect their existing mortgage customers as well.
“Improvements in availability are likely to be well received, particularly by those borrowers with the smallest deposits who may have been concerned that with low savings rates and increasing house prices, their homeownership dreams would have had to be shelved.”
Mortgage choice increases for first time since June – Moneyfacts
Product availability increased by 145 month-on-month, with the strongest growth seen in the 75 per cent and 80 per cent loan to value (LTV) sectors, according to Moneyfacts data.
However, there are less than half the number of mortgages available than this time last year.
And rates have kept on rising from the record lows of July.
The average two-year mortgage is now priced at 2.43 per cent, while a typical five-year fix is 2.70 per cent.
Eleanor Williams from Moneyfacts said: “It is notable that 63 per cent of the 145 additional products made available this month are offered in the 75 per cent and 80 per cent LTV sectors, where product numbers increased by 43 and 49 respectively.
“Indeed, availability increased across all the LTV tiers this month, with the exception of the limited 95 per cent and 100 per cent tiers where there was no change, and the smallest fluctuation was seen in the next highest LTV bracket at 90 per cent. This could be indicative of the fact that lenders are focusing their offerings toward traditionally lower-risk borrowers with larger equity or deposit.
“Also demonstrating how fluid the mortgage market remains is the fact that the average shelf life for a mortgage product has reduced to 28 days, which is the lowest on Moneyfacts’ records since providers reacted to the Bank of England base rate increasing from 0.50 per cent to 0.75 per cent in August 2018.
“It is half the average shelf life we recorded of 56 days in February of this year and suggests that borrowers have a limited time to secure their product of choice.”