Firstly, apologies for the lack of an update last week, but quite frankly any update would have been worthless as everything was changing by the hour, let alone by the day. I have not experienced a week like that for many, many years.
Most of my time has been spent speaking to the media to keep a calm perspective, and Coreco have been everywhere, from BBC 10 o’clock News, BBC Radio 5 Live with Martin Lewis, LBC and every national and local Newspaper.
It is worth explaining a little of the issue facing lenders, so sorry for the longer read today!
Usually, a lender’s funding comes through a combination of wholesale markets, government funding schemes, or through members’ savings if a Building Society. Lenders’ current challenges stem from the speed and size of the daily fluctuations in the money markets, which, if not acted upon, could turn a product range to loss leading within a couple of days.
Although the Bank of England has been increasing rates steadily, this has been manageable and expected, however the Chancellors’ “Mini-budget” took everyone by surprise with its scale and the fact that they have not proved that their plan is viable.
As this is to be paid for by borrowing money, investors in the UK suddenly saw a disconnect between policies from the Bank of England to curb inflation and Government policies that could exacerbate inflation. That disconnect, amongst other factors, spooked investors leading to Government bonds, (GILTS) crashing and the interest rates on these rising to eye-watering levels, as well as the value of the £ falling.
This spread to SWAP rates, (the future cost of money that lenders base their fixed rates on), and ultimately led to the Bank of England taking action to protect pension funds and the economy at large.
This also led to expectations that the next Bank of England Base Rate rise will have to be much bigger than expected, over 1% in one swoop.
Daily increases of 0.30% in SWAPs are not unusual at the moment, but following the chancellor’s mini-budget, we actually saw a daily rise of 1.00%.
To put it simply, the Bank base rate has gone up by 2.15% in the last 12 months (from 0.10% to 2.25%), but two-year SWAP rates – which drive funding costs for fixed-rate mortgages – have gone up by 5.10% (from 0.44% to 5.56% as at 26 September).
This has had a dramatic effect on mortgage products, with many feeling that in this volatile environment they could not price at all, hence they withdrew from the market temporarily.
This time last year a typical 2 yr fixed-rate mortgage was 1.6%. Nationwide’s new cheapest two-year fix for new borrowers is now 5.59%.
Only yesterday, NatWest announced rate rises of around 1.5% on their products, plus increasing their Buy to Let Stress rates to between 7.5% to 8%. Our brokers were hard at work on a Sunday afternoon, working to secure these products for clients before they went.
The withdrawal of mortgage products hit unprecedented levels, with Moneyfacts, a financial information service, reporting that 935 mortgage products were taken off the shelf compared with a day earlier. It said that was the biggest overnight drop it has ever recorded. It was double the previous biggest drop, which occurred during Covid.
A total of 2,661 mortgage products are still available – but that is half the number that were on sale at the start of December when interest rates started to rise.
Again, lenders have all said this is temporary and they will be back in the market within days or a couple of weeks at worse. This is a short-term pricing issue, rather than a long-term funding one.
In essence, as a broker on the ground, we have had one of the hardest weeks ever, trying to deal with worried clients, from those panicking that their application or offer will not be honoured, or those at the start of their journey hurriedly redoing sums and worried they now cannot afford to buy; to those coming to the end of their products and panicking that their payments will go up hundreds of pounds per month.
As ever, many of the reports and social media coverage have been scaremongering and we are working to keep everyone calm and look at all options available, easing worries and working with lenders to understand their issues.
The good news is that all those with applications in, or with mortgage offers are fine with their products.
We do need to watch where Mortgage Offers are potentially expiring if there are delays to completion, or if there are big material changes to an application.
We also need to manage expectations carefully. Buyers need to make quick decisions, get all their documents in order and accept their current Agreements in Principle will now be out of date.
But have no fear, that is exactly why Coreco are here. Things will calm down as they always do, and demand for property is holding firm.