With the phrase ‘negative interest rate policy’ gaining favour, some suggest there will be no rate rise until at least 2019
Well, it has been another fun week in the markets, although maybe not for those with bank shares, which have hit a bit of turbulence to say the least. Some of the reasons behind this came down to contingent convertible bonds – or ‘cocos’ – which can be converted into equity if a bank gets into trouble.
Anyway, it has given investors the jitters and there has been quite a bit of shorting going on, which has not helped matters one jot. And while one suspects things are not quite as bad as is being made out, China, emerging markets, the eurozone, oil and commodities all remain in sensitive places. There is still some way to go for all of this to play out.
Meanwhile, former FSA chairman Adair Turner has waded into the interest rate debate, saying the UK faces “almost indefinite” low rates without radical action. With ‘negative interest rate policy’ another phrase gaining favour, some suggest there will be no rise until 2019, with the markets signalling there is a 50 per cent chance of a cut this year.
So much for forward guidance, eh? We would probably be better off without even attempting it.
Now for some good news. Recent notes from the Council of Mortgage Lenders report that not only are arrears at their lowest rate for a decade (not that surprising given the low interest rates) but access to the market continues to improve. The main area of improvement is at higher LTVs, where lenders have been encouraged by the Help to Buy guarantee scheme. Let us hope this continues when the scheme ends at the close of the year.
In the markets this week, three-month Libor is still 0.59 per cent while swap rates have dropped faster than the shares of a certain German bank. Five-year money is now the lowest since May 2013.
2-year money is down 0.05% at 0.73%
3-year money is down 0.12% at 0.77%
5-year money is down 0.19% at 0.92%
10-year money is down 0.24% at 1.34%
In the warm and cuddly mortgage market there have been several of the usual changes worth noting.
Bank of Ireland (and, therefore, the Post Office) is the latest lender to come back into the bosom of interest-only and will allow sale of property to 60 per cent LTV. It has a minimum income for it of £50,000 sole or £75,000 joint. Also, school fees, which could previously be left out of affordability calculations, are now included. On the buy-to-let side its maximum loan is now £500,000 and total portfolio is up to £1.5m.
Halifax has launched some 90 per cent LTV remortgage products, available from 3.04 per cent with a £1,499 fee fixed for two years and 4.49 per cent fixed for five years with a £999 fee. It has also simplified some rules around contractors and now needs only the latest payslip to verify items such as car allowance.
Meanwhile, Leeds Building Society is launching some fee-assisted two-year base rate trackers, which start from 1.9 per cent at 75 per cent LTV with just a £199 fee. It has also improved its five-year fixed offset rates, which start from 2.45 per cent at 65 per cent LTV with a £999 fee.
Newcastle Building Society has released a two-year fix at 95 per cent LTV priced at 3.59 per cent with a £199 reservation fee and no early repayment charges. Nice.
I did a double take when I saw Castle Trust’s latest ‘hunting licence mortgage’ but it was not quite what my febrile imagination thought. It is, however, a good idea to help investors complete quickly on new purchases, such as at auction. The facility is made available with no interest charged until it is drawn, and it can be done so at short notice.
Finally, it is good to see that the FCA is set to overhaul the CeMAP qualification, which has not been updated since 2011. Things have changed somewhat since then and hopefully this will lead to a more up-to-date and relevant qualification.
Andrew Montlake is director at Coreco