A 10-year anniversary that the world would rather forget nevertheless provides a useful reminder of past mistakes and lessons learned. But there are still issues…
Ten years ago this week, the credit crunch started with a small rumble in France. Local bank BNP Paribas announced it was freezing the assets of three hedge funds with heavy exposures to the US sub-prime mortgage market.
A year later we had a run on Northern Rock, Bear Stearns in the US, then the catastrophic collapse of Lehman Bros! The rest is history.
So, 10 years on it is interesting to ask whether we have really learned from the mistakes of the past. The Bank of England thinks we are in a much better place, proclaiming that, if there were issues today, “losses that would have wiped out the whole capital base of the UK banking system in 2006 can now be fully absorbed”.
However, there are still issues. The short-term ‘medicine’ that was meant to stimulate fast recovery – in the guise of lower interest rates and government schemes to encourage spending and borrowing – is causing its own problems. As unsecured consumer credit tops £200bn for the first time since 2008, there are shaky times ahead, especially in the car loans market; and, more recently, consumer spending has actually embarked on its longest sustained fall in four-and-a-half years.
Then there is Brexit, which could still prove to be the biggest shooting of our own foot in history.
The Bank of England is still trying to determine when it can start weening us off this cocktail of low interest rates and various schemes. The crucial question of when we will see a rate rise again is very much intertwined with the amount of credit everyone has borrowed, as even a mere move back to 0.5 per cent will create ‘Rates double’ headlines and worried people.
One of the most interesting news items relates to this stability because the Bank of England is considering the cessation of its Term Lending Scheme next February. This is important because, under the scheme, the Bank has been charging lenders just 0.25 per cent to borrow money as long as they maintain or expand their net lending, meaning they can lend it out cheaply. If this ends, whether or not Bank base rate rises, mortgage costs look set to increase.
There has also been talk of ending, or at least changing, the much maligned but ultimately successful Help to Buy scheme a little earlier than its anticipated closure in April 2021; a move that has housebuilders’ share prices shaking.
While we do need to get clean again, the worry is that the ‘cold turkey’ will be a bit like the famous scene in Trainspotting – but that doesn’t mean we can’t do it.
In the markets, three-month Libor is still at 0.29 per cent while swap rates have eased up a touch once more.
2-year money is up 0.04% at 0.63%
3-year money is up 0.04% at 0.73%
5-year money is up 0.03% at 0.91%
10-year money is up 0.02% at 1.29%
So, what of the dear old mortgage market this week?
First up, it looks like it will be a busy couple of months for remortgages because reports say there are some £35bn-worth of mortgage loans due to mature in the next two months. Make hay, people!
Coventry has released some four-year fixed rates that are pretty rare, priced at 1.69 per cent to 65 per cent LTV and 2.55 per cent at 90 per cent LTV, with £500 cashback.
In the wake of Neymar junior’s reputed £500K-a-week new contract, it is interesting that TSB will no longer lend to professional sports people; not that, probably, Neymar needs a loan these days!
Barclays has joined the sub-1 per cent brigade with a 0.99 per cent two-year tracker to 60 per cent LTV. For large loans between £5m and £10m, it has bespoke products priced at 1.39 per cent for a two-year fix and 1.99 per cent for a five-year fix, with a £3,499 fee.
Meanwhile, Accord has gone rate crazy cutting as many as 25 rates; too many to detail!
In the buy-to-let world, Coventry has announced its portfolio landlord stance and will be assessing all the properties in the applicant’s portfolio, with a maximum LTV of 65 per cent across all of them.
It will also want to see a minimum income coverage ratio across the whole portfolio, including properties mortgaged with other lenders, of 125 per cent based on a reference rate of 5.5 per cent, with no single property below an ICR of 100 per cent.
Portfolio landlords must have acquired their first BTL property more than 24 months before the current application. No more than three properties (prior to the current application) should have been acquired within the past 12 months with any lender.
BM Solutions has some new rates, including a remortgage two-year fix at 1.64 per cent and a five-year fix at 2.36 per cent, with £500 cashback. It has also reduced some product transfer rates.
Finally, Pepper Homeloans has some very good rates on its near-prime and non-conforming mortgages, having cut them by up to 0.7 per cent. Residential rates start from 2.28 per cent and BTL five-year fixes from 3.48 per cent, with rental stressed at 140 per cent of pay rate.
Andrew Montlake is a director at Coreco
Heroes and Villains
Coventry – for its four-year fixes. I like something a bit different.
Those encouraging unsecured borrowing as it hits £200bn. Consumers need to be wary.