First off, thanks for all the nice comments about the new-look column. To be fair, this is all down to the team at Mortgage Strategy rather than me. I just pen the words and they make it look good!
There is only one place to start this month and that is by going on a journey through the large, heavy iron doors at the Bank of England and down the hallowed corridors to where the Monetary Policy Committee meets to discuss whether interest rates will rise. While there was no movement yet again last month, the perennial crier of wolf was at it once more, claiming there was every chance of a rise later in the year, perhaps as soon as November. What was different from the usual ramblings, though, was the tone of the rhetoric.
Of course, we have heard it many times before (it may indeed be just another way of trying to strengthen the pound, which has certainly worked) but this time feels a little different; mainly because we now have people like Gertjan Vlieghe, an external member of the Bank’s rate-setting panel and normally associated with more doveish comments, saying a rise of more than 0.25 per cent may well be needed.
There are still concerns the economy may not be quite ready for an increase, as well as the seemingly endless Brexit shenanigans clouding everything, but there have been signs of economic improvement recently and it is getting more likely that inflation will actually break the 3 per cent level soon.
Either way, the Bank is now talking itself into a corner. If it is seen to be crying wolf yet again, its credibility will be shattered and markets may simply ignore it in future.
High debt levels
The problem, of course, is that debt levels are extremely high and a hike could pose a risk to consumers on the edge, causing spending to retract sharply.
It is a tricky situation but there does seem to be some need to at least start the process of getting back to normality (whatever that is) and reverse the last cut, which many felt was unnecessary.
Whatever happens, we are likely to see this reflected in mortgage rates soon, despite the competitive pressure pervading the current environment.
In other news, Secretary of State for Foreign Affairs Boris Johnson continues his strange pro-Brexit remarks, rehashing the discredited ‘side of the bus’ figure on the amount of cash we will be able to redirect from Brussels to the NHS. Politics really seems in a mess at the moment, especially after the Government managed to pass its own version of the so-called Henry VIII powers. Will Boris be the first to be beheaded?
In the housing market, asking prices in London have recorded their biggest falls this decade. But even in London this is regional. Rightmove says they have dropped by an average of £18,000 in a month, with places such as Kensington & Chelsea spiralling by more than £300,000. This makes the annual fall in the capital 3.2 per cent overall, which, let’s face it, is no bad thing.
Indeed, whatever you choose to blame — be it stamp duty, Brexit or unrealistic sales prices — a sense of realism is returning and a buyers’ market is good news for many.
In the markets, three-month Libor has increased to 0.3 per cent while Swap rates have spiked up, as you may expect from all the talk at the MPC.
- 2-year money is up 0.08% at 0.64%
- 3-year money is up 0.09% at 0.73%
- 5-year money is up 0.08% at 0.89%
- 10-year money is up 0.07% at 1.22%
In our lovely mortgage market, the latest buy-to-let changes are upon us and I am sure many of you are deep in to spreadsheets, business plans and cashflow statements for your portfolio clients. It will be interesting to see how this all works in practice and how quickly we get to grips with it. I suspect that, after a brief period of angst, it will settle down into a pretty standard way of doing things. It is no bad thing professionalising this part of the market further and making sure landlords treat their portfolios like any other business.
Barclays has confirmed it will take part in portfolio lending and, because of the way it already assesses BTL affordability, there are few changes to its process. That said, it will accept only a maximum of 10 mortgaged BTL/permission-to-let properties across all lenders.
Clydesdale Bank, meanwhile, will not lend on a new property for portfolio landlords unless it is a remortgage with no extra borrowing, and BM Solutions requires a minimum aggregate portfolio rental cover ratio of 145 per cent stressed at 5.5 per cent.
NatWest has a new BTL calculator and revised interest coverage ratio of 5.5 per cent times 135 per cent, while increasing the number of rented properties a landlord customer can own from four to 10, as well as the maximum aggregate borrowing from £2m to £3.5m.
As for general rates, we are 10 years on from the start of the credit crunch. Funnily enough, I wrote my first Market Watch 10 years ago, when Libor was 6.3 per cent, two-year swaps were 5.85 per cent and five-year money stood at 5.66 per cent. I was waxing lyrical about Woolwich’s “excellent” product fixed for two years at 5.89 per cent and its “impressive” 10-year fix at 5.59 per cent. This is worth telling clients who think a 1.69 per cent rate is expensive.
We have some extraordinary products today, such as Halifax’s two-year fix at 1.03 per cent and HSBC’s five-year fix at 1.59 per cent, as well as its tracker rate at just 0.99 per cent. How long these will last is a topic for conjecture and discussion.
Finally, it was good to see the FCA’s comments on the regulated bridging market, which it said was used mainly by wealthier, experienced borrowers rather than those with credit issues. This is a testament to the hard work of brokers and lenders, who have managed to re-professionalise the sector and bring it into the consumer-friendly age.
What really grinds my gears?
I have been in the industry for over 20 years and always seen the best in the excellent people who work in it. One of the key things I like is how brokers rally behind one another, sticking up for the industry and the great work advice does for clients. I have rarely seen anyone deliberately try to cause a split among competitors.
So it was shocking to see a broker accuse all his hard-working peers who charge a fee for their services of “stinging the consumer in the process”. Apart from the potential libel, this plays into the hands of those who would like to see splits in our industry.
In every sector there are different business plans, and consumers are free to choose the service they value and need. Trying to get publicity is one thing, but do it based on your unique selling points rather than try to bring down others.
We face enough future threats without turning on each other. There is room for everyone in this market.
Andrew Montlake is director at Coreco