Welcome to another week of wonder in our fine industry.
It has been a very busy week with lots of enquiries fizzing in, and one report out this week that highlighted this said that both Sales Instructions and Offers Accepted in the week ending 14th May were the highest number for a decade.
Even though rates are rising, with the Bank of England Chief Economist echoing calls for rates to rise further to try to offset inflation that looks set to hit double figures, at present you can still obtain 5-year fixes at 2.5% which is still cheap in anyone’s books. The million-dollar question is of course how much further they are prepared to raise rates in the middle of a serious cost of living crisis?
Meanwhile, it was interesting to see Mr Gove’s comments that lenders should be doing more to lend. Lenders have been lending and are lending as much as they can within the current constraints of stress-testing and affordability limits. Remember no more than 15% of their lending can be above 4.5 times income. Banks are well capitalised and in the main have pots of cash to lend.
We are in a situation where lenders are playing fairly by the rules imposed by regulators and the Government after the credit crisis over a decade ago to ensure that over-the-top lending policies cannot happen again.
The lenders offering higher income multiples are doing so within the rules and usually on longer-term fixed rates which are not at the mercy of current interest rate movements or are doing so where affordability has been long established, (for example Nationwide’s max 6.5 times income for remortgage customers who are remortgaging for the same amount).
Mortgage rates are cheap, despite the fact they are rising, and even a base rate up at 2.5% is still a low-interest-rate environment historically speaking, which means that the actual monthly costs of the mortgage itself is still affordable to many. The issue now is the rising cost of energy, food prices, and living generally.
The problem is a housing market where not only are not enough properties that are suitable and affordable being built but where there is stock available it is in areas where there is not the demand, because of a lack of jobs, services, transport, good schools, etc.
The Government has largely relied on demand-sided policies to solve issues, (stamp duty holidays, help to buy, etc) rather than concentrating on building, infrastructure, and developing other areas.
As such prices have risen dramatically, helped by low-interest rates, meaning that the real problem is not mortgage availability or affordability, but simply the amount of cash needed to provide a decent deposit, or the income needed to fit within prescribed income multiples.
Yes, lenders could look at more ways to be innovative, but there are a wealth of different schemes, long-term fixes, family deposit schemes, springboard, and lend-a-hand mortgages designed to help within the regulatory constraints lenders have. Unless we develop something innovative like fractional ownership of properties, lenders are struggling to see what they can do further that satisfies risk and regulation.
The housing market needs a long-term Housing Tsar that runs a cross-party committee that develops a long-term strategy and is not changed via successive governments or by the whim of the latest 15-minute Housing Minister in the job by accident. We need a national programme of building well-constructed, affordable houses, with the infrastructure to go with it. Where are people going to go to school, how will the local doctors and hospitals cope, what about roads and transport links? See the Radlett plan where I live which was a farcical piece of fiction – thousands of houses on green belt land and nothing else. The local area could not possibly cope with that.
On the Buy-to-Let side, rents have been rising along with everything else now so many renters are feeling the squeeze now. In many cases, the actual monthly payments on a mortgage are the same or even cheaper than renting, although that all depends on the amount of deposit you have. And there is the rub! It is harder than ever to save for a deposit when rent and bills are increasing, so many feel caged in a rental trap they cannot see how to get out of.
Where mortgages are concerned, lenders do not currently feel able to consider current rental payments as evidence of affordability, which I believe they should be able to, especially if these payments have clearly been made over a period. So, borrowers can fall foul of either stress testing or income multiples because house prices are so high, even though they feel the mortgage payments themselves are affordable and about the same as their rental payments. Lenders also consider the new costs of running your own home, which could amount to more than the additional costs of renting when you don’t have a landlord to fix things for you or pay buildings insurance for example.
What is interesting is that the best Buy-to-Let rates are remarkably similar to those on the residential side, and lenders have certainly not lost any appetite to lend in this market, far from it.
As ever the real struggle for everyone is the speed of rate withdrawals from lenders. There are instances where a rate is quoted in the morning that goes that afternoon, so speaking to a broker as early as possible in the process is imperative.
In terms of mortgage rates, for standard residential mortgages, borrowers can obtain 2-year fixes at 2.23% (4.00% APRC) and 5-year fixes from 2.45%, (3.90% APRC), whilst variable discounted rates are around from 1.29%, (5.00% APRC).
Those looking at Buy-To-Let can now obtain products from 1.64%, (4.40% APRC) for a 2-year tracker or 5-year fixes are available from 2.39% (4.30% APRC).
Have a great week!😊