Market Watch: A new period of affordability?


Given suggestions that the new Bank rate could stay in place for five years, will offset tracker mortgages become the ‘new black’ in this year’s winter season?

Despite predictions to the contrary, August has started quite busily for many brokers around the UK, from what I am hearing.

Naturally a rate cut helps the phone to ring but it is comforting that many of these borrowers seem committed to actually doing something, which is good for everybody.

It was interesting to see the report from the Council of Mortgage Lenders stating that first-time buyer activity in June was up by a quarter on last year and at levels not seen for nine years. It was also the third month in a row where first-timer loans outnumbered those of homeowners.

Of course, we now have the Brexit effect to add to the mix but, with asking prices on properties now seemingly a little more reasonable and affordability improving as rates fall, it will be interesting to see how this holds up in the next couple of months.

There was a lot of press over the past week about a study from charity Shelter that suggested that a staggering one in three families would be unable to pay their rent or mortgage for more than one month if the breadwinners were to lose their jobs. As advisers, we must continue to educate our clients about all the risks, the crucial role of protection and the importance of having a savings buffer.

As 10-year gilt yields have fallen below 0.6 per cent for the first time, in the markets this week three-month Libor has dropped dramatically to 0.38 per cent while swap rates have also fallen in the aftermath of last week’s rate cut.

2-year money is down 0.03% at 0.39%
3-year money is down 0.04% at 0.39%
5-year money is down 0.06% at 0.43%
10-year money is down 0.19% at 0.69%


A plethora of lenders have cut their rates in line with the fall in Bank base rate, which was to be expected. But the real concern will arise if there is another cut, as suggested, which could result in a different story as lenders ponder whether they really need to cut even further.

An example of a lender not passing on the rate cut, however, is Shawbrook Bank, which has a 0.5 per cent product collar, so its variable-rate borrowers will get no benefit.

Given suggestions from some that this new rate will stay for five years, could offset tracker mortgages become the ‘new black’ in this year’s winter season? With savings rates plummeting, it seems a good time to make use of offset facilities to help pay down mortgage balances a little bit more quickly.

Also I suspect some stress rates will fall a touch, and therefore affordability will improve on both residential and some buy-to-let criteria.

Nationwide has changed its valuation fees and has no standard valuation fees on any of its purchase, remortgage or further advance products. It has also made some decent reductions on many of its fixed rates.

Virgin Money has cut selected three- and five-year fixed rates, which are available from 1.79 per cent for a three-year fix and 2.09 per cent for a five-year fix up to 65 per cent LTV.

Tesco Bank has reduced rates on all two- and five-year fixed products as well, while Skipton Building Society has new three-year fixes from 1.99 per cent to 60 per cent LTV. Not to be outdone, Coventry Building Society has also made some reductions.

Leek Building Society has launched a 75 per cent LTV interest-only product through intermediaries, which is jolly decent of it. The two-year discount is at 1.79 per cent with no fees and a refund of the valuation fee.

Leeds Building Society has made a great policy change to help longer-term tenants and landlords. It now has no maximum tenancy period, which is a change from the 12-month rule previously. The property must still be let on an assured shorthold tenancy. This is an excellent move and hopefully other lenders will follow suit, especially as more and more people want extra security when renting and landlords want security of income.

Accord has released some new two-year tracker products for buy-to-let landlords that come with no early repayment charges, which is a welcome addition to the market. They start at 2.69 per cent to 65 per cent LTV and 2.9 per cent to 75 per cent LTV with a fee of £300 and a free standard valuation to boot.

Mansfield Building Society has a new five-year fixed-rate buy-to-let product priced at 3.29 per cent to 70 per cent LTV with a fee of £1,999 and a free valuation.

Finally, the FCA is considering tighter buy-to-let controls for lenders outside the PRA, worried about “substandard underwriting”. I have run out of things to say on this subject, so roll on my holiday. Sangria, anyone?