Will we see two white rabbits? – Mortgage Strategy
The extraordinariness of our politics seems to be continuing, but this time, for now at least, not in the shambolic way it did with the previous two prime ministers.
Although we have another Budget to get through soon, for now it’s fun to bandy around the statement, ‘Ooooh, look who actually got Brexit done!’
It appears — in these early stages, anyway — that Rishi Sunak has played a blinder in the recent negotiations with the EU. Although I always expect the unexpected these days, it is fair to hope that something actually meaningful has been achieved.
More than that, the manner in which it was carried out, carefully, respectfully and diligently, without histrionics or trying to steal headlines, is noteworthy. (I really hope this paragraph ages well!)
Builders will hope for some Help to Buy 2 initiative
Whether this is the start of a new era remains to be seen. And, while Boris in time may pop up with another way to try to grab back power, the Conservatives seem more together than they did a week ago. I’m sure this is a ‘Hold my beer’ moment for someone!
With a general election on the horizon, there are still many who expect some kind of white rabbit on housing. We can only hope it is something long term and meaningful rather than another demand-sided scheme that inflates prices once more. Builders will undoubtedly be hoping for some Help to Buy 2 initiative, but there is no indication of this as yet.
Contradictory forces
Meanwhile, it seems a fair few contradictory forces are at work in the economy, which is leading to confusion over the immediate path of interest rates.
Like many, especially those pricing products at various lenders, I had to double-take this week when my regular check on swap-rate movements made me utter a word or two not fit for printing here. Just when most people thought rates had peaked, it seems the markets have other ideas.
What we could all do with now is proper competition in the market once more to help consumers make their decisions
One-year swaps are now at 4.5%, showing that the market expects the Bank of England to increase rates to 4.5% at its next meeting, or at least make two more 0.25% changes.
There are a few thoughts on what is causing this, but stronger-than-expected economic data both here and in the US, wage inflation, higher car sales and continued low unemployment have seen markets believe that inflation may stay higher for longer than expected.
There is an expectation that the Fed in the US may up the pace of its rate hikes and the UK will follow. Hence interest rates may need to stay higher for longer.
There is at least a mortgage market once more after the shambles of late 2022, and some green shoots to cling to
This is, however, contradicted by Monetary Policy Committee dove Silvana Tenreyro, who says that, because it takes time to feel the effects of rate rises, the economy has not felt the real effects yet, so she thinks we have already gone too far! As, by the way, do I, but then again my opinion is worth, in the words of my wife and children, “nada”.
Anyone waiting to see interest rates get suddenly much cheaper before buying could well be disappointed and it shows how trying to call the market is fraught with danger.
Competition
We do still have the contradiction of competition in the market, however; and, while Platform and HSBC cut then increased their rates again, others such as Barclays and NatWest have just cut again slightly, while Coventry Building Society has a five-year fixed still under 4%.
With a general election on the horizon, there are still many who expect some kind of white rabbit on housing
With five-year swaps back at the 4% level, it seems this is the threshold where rates will stay for a while, and any lender cutting now will be making a short-term business grab unless all the top six decide it really is time for a rate war.
Personally, I hope that time comes sooner rather than later. What we could all do with now is proper competition in the market once more to help consumers make their decisions.
Looking at the markets shows us that three-month Sonia has woken again to rise to 3.37%, while swap rates have smashed through the short-lived glass ceiling.
Since the previous column:
2-year money is up 0.52% at 4.50%
3-year money is up 0.46% at 4.31%
5-year money is up 0.46% at 4.01%
10-year money is up 0.37% at 3.71%
There is, however, at least a mortgage market once more after the shambles of late 2022, and some green shoots to cling to as we urge spring to take us out of winter’s gloom.
Lenders continue to tweak their criteria and affordability calculations to help borrowers. Santander, for example, has improved its calculations for those who have existing properties in the background, and Virgin Money is now potentially excluding Covid-year reductions in income for self-employed borrowers.
If you want to know more about the green agenda, the Green Finance Institute has launched a guide
Vida has some new products complemented by criteria enhancements, such as up to six times loan-to-income, no restriction on number of storeys in a block of flats and only one year’s UK residency required before application.
The lovely people at MPowered Mortgages have opened up their distribution to all and their tech-powered offering will be an interesting player in the coming months.
Leeds Building Society has launched two five-year fixed-rate mortgage products at up to 95% loan-to-value, aimed at first-time buyers, from 4.95%.
PRS report
It was interesting to read Paragon’s report in which landlords in the private rental sector (PRS) had led a 165% increase in the number of homes with an EPC rating of A to C.
There is an expectation that the Fed in the US may up the pace of its rate hikes and the UK will follow
However, the scale of the job in hand, if government proposals go ahead to allow only properties with an A-to-C rating to be let, means approximately 3,130 homes per day would need to be upgraded to a C rating, or 4,500 if only working days were included. That’s a tall order in anyone’s book!
If you want to know more about the green agenda, the Green Finance Institute has launched a guide to educate intermediaries about various green home retrofit solutions and types of technology. This has been a great collaboration between industry bodies such as Ami, the BSA, Imla and UK Finance, among others.
Anyone waiting to see interest rates get suddenly much cheaper before buying could well be disappointed
Finally, it’s not every day that one of our own is given the Freedom of the City of London. So all rise, or bow, to applaud Paragon Bank’s MD of mortgages, Richard Rowntree.
Richard was awarded this accolade for his work with the excellent Progress Together organisation, to promote socio-economic diversity and inclusion in the financial services sector. Congratulations, Richard.
Hero to Zero
Richard Rowntree at Paragon, with the Freedom of the City of London award. He is the man to follow on a night out
The excellent group of BDMs going above and beyond to help with cases
40% of board positions in the FTSE top 350 companies are now held by women, which is three years ahead of target
The government is still not confirming its rental property EPC proposals — are they happening or not?
Almost 700,000 empty homes in England — these could be used as much needed homes for many
I’m still angry with Truss…
What Really Grinds My Gears?
I haven’t really written yet about another massive challenge that firms in our industry are facing this year: the FCAs new Consumer Duty.
This is a large, all-encompassing regulatory backdrop that looks, on the face of it, relatively straightforward but is actually deceptively complex.
With a focus on fair value, vulnerability and consumer outcomes, it could be argued that it is well timed given the cost-of-living crisis.
However, also coming at a time in the market when many firms are engrossed in trying to make sense of their own business and looking after their clients, the shortish timescale to embrace the new set of rules is challenging for lenders and brokers alike.
There are no doubt going to be some interesting discussions and I urge all lenders and brokers to really work together for the good of everyone, rather than draw up potential battle lines.
Luckily, our industry has embraced many of the ideas around this initiative already and tries more than many others to make sure our customers are treated fairly, with an eye on avoiding foreseeable harm at all costs.
But, like any industry, there is more to do and we cannot just ignore this new regime.
For those still struggling to make sense of it all, I would point you in the direction of the extraordinary work the team at Ami have done, and their invaluable Consumer Duty Fact Sheets.
If you are not a member of Ami, it really is the best time to make use of the association’s guidance and support.
Andrew Montlake is managing director of Coreco
This article featured in the March 2023 edition of MS.
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