An Important Time for the Mortgage Rate Outlook

The Bank of England has raised interest rates 12 times since the end of 2021, a record run, as everybody is surely aware.

Few expected this before it happened, either among forecasters, in the financial markets, and among mortgage borrowers.

Nearly 15 years of near-zero interest rates had made this seem like the norm.

To illustrate this, I recently came across a column I had written for The Sunday Times on October 31, 2021, headlined “A Scary Halloween Story on Inflation and Interest Rates”.

This, written when Bank Rate was still an all-time low of 0.1%, reflected on new predictions from the Office for Budget Responsibility (OBR).

Its main forecast then was that the official rate would soon rise to 0.75% and stay there for three years, thus continuing the pattern of low rates seen since the 2008-9 financial crisis.

But the OBR also offered an alternative scenario, if inflation proved to be more of a problem.

Under this one, and this was the scary bit, Bank Rate would rise to the heady heights of 3%, a rate not seen for well over a decade.

So scary did it seem, in fact, that few believed it would ever happen.

It did, and more.

Bank Rate is now 4.5%, having got there in both small and large steps.

The smallest was 0.15%, as the Bank dipped its toes into the water in December 2021.

The largest, 0.75 percentage points, was in November last year. Reflect on that.

The maximum rate between March 2009 and the spring of last year was 0.75%. In one got, the Bank had raised by that much, and a coupe of half-point hikes followed.

Mortgage rates do not follow official interest rates as closely as they used to, because of the shift to fixed rate mortgages.

Even as Bank Rate was rising last winter and this spring, mortgage rates came down from the giddy heights they had reached in the wake of the Liz Truss-Kwasi Kwarteng min budget in September last year.

The mortgage market has, however, now started to reflect concerns about where Bank Rate will peak.

Rates are edging up again, with a typical two-year fix on 90% loan to value up to 5.12%, and a five-year fix up to 4.79%, both slightly higher than they were before the Bank’s latest rate rise on May 11.

At the end of April, these typical rates were 5.04% and 4.67% respectively.

So this is an important time.

The next decision from the Bank of England’s monetary policy committee (MPC) is not until Thursday June 22.

Before that, there will be two new inflation figures.

The first, on Wednesday (May 24) this week, covering April, is expected to show a significant fall in inflation.

Taking it comfortably into single figures, as a result of some of the energy price hikes dropping out of the 12-month comparison.

The next reading will come on June 21, the day before the MPC’s next decision.

The key question is not what happens to “headline” inflation, which definitely should fall significantly this time after a couple of disappointments.

If it does not, we really do have a problem.

The question is what happens to so-called core inflation, excluding energy and food.

It needs to show evidence of a fall before the Bank can start to relax.

That is not the only important indicator affecting the outlook for interest rates.

The Bank is concerned about the growth in wages.

In the latest official figures, its dilemma was laid bare.

The number of people off company payrolls fell sharply in April but pay growth was strong, with regular pay up by 6.7% on a year earlier in the latest three months, and by 7% in the private sector.

Total pay growth, including bonuses, was lower at 5.6%.

The question MPC members will be asking will be whether, if inflation falls as they expect, pay rises will also head lower.

We are clearly getting the near the peak in interest rates.

Andy Haldane, the Bank’s former chief economist, agrees with two members of the MPC, Silvana Tenreyro and Swati Dhingra, that rates should not go up any further.

The majority on the MPC is not so sure.

The sooner that peak is reached and we can begin to look over the hill to eventual rate reductions, the better.

Source: Property Notify

Nationwide Offering 0% Loan for Green Home Improvements

Nationwide Building Society is increasing support for mortgage members improving the energy efficiency of their homes by reducing the interest rate on Green Additional Borrowing to zero per cent.

The new 0% Green Additional Borrowing products, which will be available from Thursday 1 June, will enable up to 5,000 households with a Nationwide mortgage1 to borrow £5,000-£15,000 up to a maximum of 90 per cent Loan-to-Value (LTV) across the two or five-year product term2.

With the UK’s 29 million homes producing some 16 per cent of the country’s emissions and a commitment to reach the net zero target by 2050, Nationwide’s approach aims to contribute towards that goal through retrofitting properties.

While Nationwide has limited ability to reduce emissions on the properties it lends on, it hopes that by removing interest on its Green Additional Borrowing products, it can effect positive change by incentivising members to make green home improvements.

For example, if a member borrowed the maximum £15,000 over a five-year term, the monthly payment on the existing Green Additional Borrowing product at a rate of 3.89% would be £275.50.

For those taking out the new version, the payment would reduce by £25.50 per month to £250, meaning the member would save £1,530 over the full term of the deal.

The new Green Additional Borrowing home loan3 is available via Nationwide’s mortgage advisers as well as brokers.

All of the loan must be used to fund non-structural, energy-efficient home improvements4, such as solar panels, air source heat pump, window upgrades, boiler upgrades, cavity wall insulation, loft insulation or an electric car charging point.

Members can use any local or national contractor or supplier for the work.

The previous version of the Society’s Green Additional Borrowing product will be withdrawn from sale at 23:59 on 31 May 2023.

Henry Jordan, Director of Home at Nationwide Building Society, said:

“Residential properties are one of the biggest causes of emissions and there is a need for more to be done by government and business to encourage households to act.

A key barrier to making homes more energy efficient is not only the upfront costs associated with retrofitting, but also the payback period of making such changes.

It’s clear to us that only meaningful incentives will help shift behaviour.

So, by launching this latest product for up to 5,000 of the Society’s mortgage holders, we can test and understand whether offering zero per cent interest will encourage members to make the necessary green home improvements, where the costs of finance may have, until now, discouraged them.

As a mutual, we’re committed to returning value back to our members, which is demonstrated by this being the first time we’ve taken this approach.

Creating a greener society is a shared goal and we need to make it as easy as possible for households to play their part.”

Mortgage Technical Manager, Nicholas Mendes, from leading UK mortgage broker, John Charcol, comments:

“While there are other lenders that offer similar schemes, such as Skipton Building Society and Saffron Building Society, none of these are currently at 0%.

Sustainable lending is a hot topic at the moment, with consumers taking a vested interest in how they manage their money – but also the credentials of financial institutions they choose to engage with.

With the government’s net zero pledge, and greater focus on a lenders’ role in educating, promoting and helping customers invest in their homes to become more sustainable, this is a fantastic move by Nationwide.

Source: Property Notify

The Government’s Levelling Up Plans: Are There Certain Areas Worth Investing In?

In March’s Spring Budget, the Chancellor announced a raft of measures that the Government intends to help ‘level up’ the UK.

This involves addressing the challenges faced by areas currently underperforming economically and building on areas of strength, “ensuring the benefits of economic growth are felt across the UK”. The focus will be on “supporting growth in the sectors of the future”, namely: green industries, digital technologies, life sciences, creative industries, and advanced manufacturing.

How does this relate to the property market?

When investment is made into the infrastructure and economy of an area, it attracts businesses and creates employment opportunities, which can, but not always, boost the demand for housing.

And if this generates more wealth and the desirability of an area increase, that can drive up prices and rents and create new property investment opportunities.

So, for property owners and landlords, it’s well worth being aware of which areas are being targeted for Government and institutional investment because the earlier in the process you can take advantage of property investment opportunities, the better your medium to long-term returns could be – both in terms of equity growth and rental profits.

Where can I find out about levelling up funding for my area?

More details on the above can be found in the Spring Budget policy paper on the GOV.UK website.

To find out about specific plans for your area – or an area you might be considering investing in – you can visit the local council planning department, which will have details on infrastructure changes and any new commercial and residential buildings.

Source: Property Notify

The 100% Mortgage for England’s 4.6m Renters

Tuesday (9th May) saw Britain’s fourth biggest mutual, Skipton Building Society, launch its 100 percent Track Record Mortgage to help the 4.6million households across England, who are privately renting, get onto the property ladder without a deposit.

This move marks the first 100 percent home loan exclusively for renters and has been described by some commentators as a “revolutionary” way to help those trapped in the rental cycle get on the property ladder.

The mortgage is open to first-time buyers who are currently renting and allows them to borrow up to 100 percent of the value of a property (subject to passing the lender’s affordability criteria).

Naturally, others are not very optimistic about this product, with some warning that it is not too dissimilar to the risky loans that contributed to the 2007-08 financial crash.

More negativity surrounding today’s property press includes the Halifax’s report that average UK house prices fell in April, by 0.3 percent month on month; threats of negative equity; Thursday’s rumoured interest rate increase; Purplebricks’ struggle; and, the fall in some housebuilders’ share prices.

Regardless of where you stand, a 100 percent mortgage is a facility that may allow people who rent to become homeowners.

The number of private renters in England is currently double what it was in 2000 and 80 percent of tenants feel ‘trapped’ in renting, paying rents that are higher than a mortgage which then prevents them saving a deposit to buy their own home.

Skipton is addressing the barriers to homeownership with what is a solution to a problem.

The Building Society has recognised that there is a gap in the market for people who have a strong history of making rental payments over a period of time and can evidence affordability of a mortgage – but for whom there is currently no solution to buy a property due to lack of savings or access to the bank of mum and dad.

The threat of negativity equity is a big one as even a small fall in house prices could put those who sign up into negative equity, potentially trapping people in properties worth less than their mortgages.

It is important that borrowers understand why and how this product is different.

A ‘no-deposit’ mortgage was commonplace before 2008, at which point they were axed and tighter rules were introduced on who can get mortgages and how much they could borrow.

On reading about the mortgage, there are several obstacles that prospective homeowners need to overcome to qualify for the 100 percent deal.

For example, the monthly mortgage payment must be equal to or lower than the rent they are used to paying.

So, tenants paying an average of £1,000 a month over the last six months will have a maximum monthly mortgage payment of £1,000, and this will also determine the maximum amount that can be borrowed.

Standard mortgage affordability requirements must be met, applicants must be over the age of 21, and credit score checks must be passed in addition to evidence of a minimum of 12-months’ good track record rental history.

The mortgage is a longer-term product – a five-year fixed-rate deal – which is designed to mitigate volatility, and the 5.49 percent interest rate is pricier than the current average new five-year fixed-rate, which is about 5 percent.

The mortgage has a maximum term of 35 years and buyers will be able to borrow up to 4.49x their income up to a maximum total loan of £600,000.

There are other 100 percent mortgages on the market, however, these generally come with a requirement of a guarantor and are labelled ‘family assisted’ mortgages such as the Barclays Family Springboard mortgage.

Source: Property Notify

Confidence is Up, But Higher Interest Rates Are Biting

This is an interesting spring for the housing market.

For every negative indicator, there is usually a more positive one and, while conditions have clearly improved in comparison with the panic of last autumn, housing is still adjusting to the higher interest rate environment. That adjustment is still underway.

One positive in recent days came with the news that consumer confidence, while still at historically low levels, is on the up.

The closely watched GfK consumer confidence index rose six points this month, its third increase in a row. Every measure in the index showed a rise.

Perhaps most significant for the housing market was a rise of eight points in how people see their personal financial situation over the next 12 months, and an increase of five points in the major purchase index, which measures whether respondents see this as a good time for a big purchase.

“There’s a sudden flowering of optimism with big improvements across the board,” said Joe Staton of GfK.

“The eight-point jump in how we see prospects for our personal financial situation is a dramatic change that might suggest household finances are stronger than we thought.”

This is good news, coming as it does before the cost-of-living squeeze is over.

It may reflect the fact that the winter was not as bad as feared, so a collective sigh of relief.

Source: Property Notify