When it comes to mortgage rates, the common question of, ‘How low can we go? (at the time of writing) has a couple of answers.
You can currently pick up a two-year fixed-rate at 0.84% and a five-year alternative at 0.97%, albeit with varying fee amounts which will clearly make a difference to individual borrowers.
By the time you read this, I’m fully aware that these ‘best buys’ might have continued to inch down further, such is the need to attract mortgage business over the course of the next few months in particular.
It will not take a brain surgeon to work out how we have come to this point – lenders have money to lend and if it continues to sit on balance sheets then it’s ‘dead money’.
According to Capital Economics, UK households saved an extra £190bn during lockdown, and if the vast majority of this is sat in banks’ savings accounts, then even at low levels of interest, it’s costing the lenders not to have this money out in the marketplace.
Hence, if you have a 40% deposit/equity, then you’re likely to be looking at below-1% rates from a variety of sources. Again, as I write, you can get 24 two-year deals and eight five-year deals below 1%, and competition shows no signs of slowing down. If you’re a lender, and you want the 60% LTV business, then you’re going to need to be swimming in these waters.
It all makes the next few months very interesting because, as you can see from above, we’re not simply talking about a couple of lenders being ultra-competitive but tens of lenders needing to do this.
Of course, advisers will know where the service pinch points are, and depending on the timing, those lenders who have excellent levels of service but are not necessarily top of the tree rate-wise, are still likely to be picking up business. But, the rate will need to be in the same ball-park.
Which leads us back to the question I posed earlier, ‘How low can we go?’. The fact of the matter is that, after the end of September, there is no stamp duty influence to speak of. Completions are likely to spike a little during the month as purchases take advantage of the partial holiday, but these rates on offer are for Q4 not the next few weeks.
Can lenders continue to go even lower still? There was some talk that inflation levels might see the Bank of England’s MPC having to move Bank Base Rate (BBR) sooner rather than later, and that when it does this, mortgage rates are likely to head slowly in the other direction.
But, now, I’m not so sure. Inflation dropped back to the Bank’s 2% target in July, and while there is speculation it could double by the end of the year, the Bank is clearly going to wait and see before it acts. Plus, of course, an increase in BBR doesn’t necessarily move lenders’ headline mortgage rates anyway, even if it does move their SVRs.
With capital not looking like an issue, or BBR increases, what about capacity? We’re all acutely aware of just how busy the year has been, particularly prior to the end of June, but we sense that lenders’ pipes have been clearing down for some time, and that with employees returning to offices and a more normal working arrangement in place, lenders should be able to service as much business as they are able to generate.
If the competition can’t be seen off by rate alone, perhaps the focus will fall on fees? They are pretty high for the very best rates, and these might come down. Plus, we’re already seeing rates falling at higher LTV levels – perhaps lenders are already sensing they need to go higher up the risk curve, and price more competitively here, in order to secure business.
In that sense it’s interesting that you can secure a below-3% 95% LTV mortgage now when, in the immediate aftermath of the Government guarantee scheme and the products it generated, rates were hovering around 4%.
All in all, the positives for would-be borrowers and existing homeowners who can remortgage remain plain for all to see. It’s unlikely rates are going to undergo a u-turn of any kind for some time, simply because lenders want the business. Advisers are in a very strong position and they should make the most of it for them and their clients.
Simon Jackson is managing director at SDL Surveying