The reaction, or might we even say lack of reaction, to the Bank of England’s decision to raise Base Rate to 3% has been particularly interesting over the last couple of days.
Interesting because in ‘normal’ times, such a move would likely be quickly followed by lenders moving product rates. Now, of course, it is early days as yet but – on the surface – it doesn’t look like lenders are showing any overwhelming appetite to raise interest rates on their products quickly.
You might well argue this is because rates have already been moved in reaction to what happened to swaps post-‘Mini Budget’ and that, even as swaps have come off their recent highs, lenders haven’t really been inclined to move rates by a great deal in the last couple of weeks.
Bank Base Rate is still well below swaps anyway, and given most lenders price based on a combination of both, it seems obvious to say we might not see mortgages being priced upwards as a result of the former being raised.
That was certainly the message coming out from the Governor of the Bank of England, Andrew Bailey, who seemed to suggest he believed average mortgage rates might actually continue to fall in the weeks and months ahead.
That would certainly be good news for worried borrowers and would-be purchasers although both are going to have to pay considerably more for mortgage finance than they would have done pre-‘Mini Budget’.
As mentioned, it is early days yet, but there doesn’t appear to have been much change – if any – for example, within the higher (95%) LTV market as a result of the Bank’s decision to raise BBR.
For instance, I searched product availability for a first-time buyer looking to secure a 95% LTV mortgage on the average price of a UK property – according to the most recent Nationwide index of £268,282 – just prior to the Bank’s decision and also 24 hours later when it had been made.
In the hours before, would-be borrowers could access 107 95% LTV products, according to an online search engine, of which 86 were fixed-rates and 21 were discounts/trackers or variables. The ‘cheapest’ rate was a 3.19% three-year discount from the Family Building Society, with the cheapest five-year fixes at around 5.78/79% and a two-year fix at 6.4%.
After the BBR decision, the same search showed that only one fixed-rate product had been pulled, and (at the time of writing) there was 106 products available, with – as far as I could see – no price changes made yet. Of course, BBR tracker products would change, as I suspect at some point in the future, would variable rates, but again there didn’t appear to be any rush on the part of lenders to move further upward.
On a wider note, the availability of 106 95% LTV products is a considerable improvement on where we were in the immediate aftermath of the disastrous ‘Mini Budget’. Last time I ran the same search, the number had dropped to just 53 so it is positive to see lenders returning to this space – a doubling of products since early October – and I hope this is a trend that continues.
If you recall, at the start of September, there were 176 95% LTV products available, so we have some way to go to get back to that number but we’re clearly well off those initial lows. Of course, we are in an altogether new pricing space now than just a couple of months ago – back in September you could pick up a two-year fix for below 4%. Who knows when, or even if, we’ll be able to see those sort of products available again.
So, while the headline of BBR being raised by such a considerable margin might worry would-be first-time buyers, what we might (hopefully) continue to see is rates continuing to inch down over the weeks ahead. It’s my belief that the rest of 2022 is not going to be boom time for this market, or purchase in general, however 2023 may well be different.
If, as anticipated, it is to be a subdued year for purchasing – and who knows if that will play out – then lenders will have to do something in order to bring in purchase business and to meet new lending targets. Would-be first-timers who think they have no chance of financing a purchase right now, might find if they are able to wait that the mortgage product landscape becomes much more favourable then than now.
The end of 2022 might well draw a line in the sand in that regard. It is certainly to be hoped that lenders continue to be drawn back to high LTV lending and that a more competitive market is reflected in both product choice and a more competitive set of rates to choose from.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International