March as a month certainly gave the mortgage market a lot to digest and I suspect it will be some time before that hearty ‘meal’ has made its way through our digestive systems.
In a somewhat surprising way, the Budget was the least influential but the OBR’s forecast for inflation certainly pushed the dial in terms of swap rates, and for a very brief period it looked like there would be no need for the Bank of England to raise Base Rate again.
How wrong we were on that one. No sooner had we looked forward to the sunlit uplands of falling inflation for the rest of the year, followed by a continued downward trend for both BBR and mortgage product rates, than we had the somewhat unwelcome news that inflation had actually risen to 10.4%. This wasn’t supposed to happen.
It somewhat inevitably resulted in the MPC raising BBR again, and while it doesn’t make the OBR’s forecast redundant, a big part of me looks at the continuation of double-digit inflation and thinks it could be much ‘stickier’ than some might believe/hope it to be.
Certainly, we’re going to have to see some sizeable drops over the rest of the year to get close to an inflation forecast of just under 3%, as predicted by the OBR.
Increasing BBR doesn’t necessarily mean a straight translation into average product rates moving up by 0.25%, and given the competition in the market– particularly amongst mainstream lenders – and swap levels fixed-rates have genuinely stayed where they were prior to the MPC decision. Of course, trackers/discounts/variables have tended to be moved upwards.
As I hope you know, every month I look at the mortgage market product availability for those with the smallest of deposits – most likely to be first-time buyers – as the 95% LTV product numbers can often tell us a great deal about the appetite to lend in this space, and the options (or otherwise) first-timers have, particularly those who can’t rely on big deposits/gifts from the Bank of Mum & Dad.
It would appear those deposit requirements are continuing to lessen as we move through 2023, although the UK housing market is very regionalised. According to Nationwide, the average price of a property dipped again this month, down to £257,122.
That was a 0.8% monthly fall but a 3.1% annual fall and the anticipation is that ‘average prices’ will continue to drop over the course of the rest of the year, before resuming an upward trajectory from 2024. We shall see.
However, using that Nationwide house price figure we get to a 5% deposit figure of £12,856 and, searching for 95% LTV mortgage product numbers, we see these have dipped over the month from 147 in early March to 135 now. Albeit this is the exact same number of products available back in February.
We had seen a steady increase in product numbers prior to this, but clearly a number of lenders have decided to pull both fixed and variable products recently. That said, we still have 115 fixes available and 20 variable/discounts/ trackers.
As you might have anticipated the latter grouping have inched up, with Vernon Building Society’s lifetime discount up the full 25 basis points to 4.4%. Fixes however, as mentioned, have stayed pretty similar, indeed we now have a new ‘best buy’ – also from the Vernon – a five-year fix priced at 4.6%, while Skipton’s five-year fix at 4.75% is unchanged. The best two-year fix remains Monmouthshire’s ‘outlier’ at 4.9%, with Skipton again offering a two-year deal at 5.3%.
Fixes remain competitive due to the fact swap rates continue to track well below Base Rate – at the time of writing, SONIA swaps for five/seven/10/15 and 30 are all well below 4%, and I fully agree with those who are calling for much more education to borrowers on swaps, and how these impact, and are far more influential, on their mortgage product rates. In that sense the focus on BBR is something of a red herring and needs addressing.
Overall, therefore, we have seen a slight dip in product numbers, but I have a feeling this might be a temporary situation, particularly as lenders continue to seek purchase business in a market in which purchase activity has fallen. Offering higher LTV products is one way to tap into this, and with swaps at such levels, the ability to price longer-term fixes at a competitive rate, should mean they can develop their ranges for those first-timers who certainly need access to these loans.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International