Market Watch: MPC losing credibility with confusing rate messages

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With many accusing the Federal Reserve of bottling a rate rise decision, I think it is a bit unfair to ask them to totally ignore issues such as China, which have threatened to blow world markets off course. They also seem a little more concerned than most about the possibility of raising rates and then having to cut them again like some other countries have done.

Here in the UK, Bank of England chief economist Andy Haldane has recently warned we could still see a cut in rates, even going so far as to say negative rates may be needed. But there are still those who believe a rise will be sooner rather than later, which seems to be a sign the Bank and the Monetary Policy Committee are losing credibility on contradictory messages. The markets appear to suggest we should now expect the next rise to come in August 2016.

Elsewhere, it is all about the implementation of the European Mortgage Credit Directive. Lenders are busy explaining their changes, which, at the moment, centre around whether or not they will accept foreign currency as income.

In the markets this week, three month Libor is a tad lower at 0.58 per cent, while swap rates have been slammed down.

  • 2-year money is down 0.09 at 0.98 per cent
  • 3-year money is down 0.11 at 1.17 per cent
  • 5-year money is down 0.13 at 1.48 per cent
  • 10-year money is down 0.13 at 1.88 per cent

Talking of the EU MCD, some lenders are pulling out of so called “foreign currency” as a result. Halifax, BM Solutions, Skipton and Clydesdale are all included here, while Santander will continue to consider them. Lenders will also introduce more questions to identify possible consumer buy to lets.

Meanwhile, Kensington is the latest lender to have improved its interest only offering. It will now lend 75 per cent interest only to those with a plausible repayment strategy earning more than £75,000. Examples of “plausible” are the sale of the property, the sale of unencumbered second properties or BTLs.

This comes as the Council of Mortgage Lenders reports there had been a 16 per cent fall in the number of interest only loans taken out in the past year.

Elsewhere, Santander has made an excellent processing change and will now instruct valuations on initial case set up. This should help speed up the process further.

TSB is changing its rates and introducing a £250 cashback on a whole swathe of products. It also has some new offerings in the 95 per cent loan-to-value arena.

Precise has a cracking five-year fixed rate for BTLs at 4.39 per cent and will lend 70 per cent up to £1m. The rental income is calculated at the pay rate and the last age for application is 79. BM Solutions, meanwhile, has cut rates by up to 0.15 per cent.

Finally, I note the CML is urging against the debate around older borrowers becoming divisive. I totally agree. We need a common goal to help the borrower and we must work together as an industry to find the best solutions.

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Heroes

hero

Kensington – for its interest only changes and general criteria improvements recently. Also, Precise for its new criteria tweaks.

Villains

villain

The MPC – for its contradictory interest rate messages. They just cause confusion and, worse, apathy.