Discounted products continue to appeal
Last month I wrote a piece about not ignoring competitive discounts when researching products. I still believe this is something advisers should become more comfortable with, rather than recommending just a tracker, or even a fixed-rate product.
By the start of March we had seen shifts of 2 per cent in our mainstream mortgage applications and 3 per cent in buy-to-let applications, away from fixed rates to variable rates. I believe this is a sign of a growing number of borrowers opting for the lower rates offered by these products.
Some of these customers may be questioning the logic of those who took higher-priced fixed-rate products two years ago as a safeguard against rising rates and who have seen little benefit from doing so.
Recently a lot of lenders have raised rates on new products as swap rates climbed while many money markets priced in the next base rate rise, now not expected until 2017. So some lenders now have a differential of 50 basis points between their fixed and discounted rates.
Many discounted products often have no early repayment charges, or have a switch-to-fix option. This means that, should there be a base rate rise and lenders’ standard variable rate starts rising rapidly, the customer can opt to move.
Robert McCoy, Sesame Bankhall
Short-term BTL drop-off for longer-term growth
According to some, we are on the cusp of the ‘great landlord exodus’ where hundreds of thousands of properties flood the market as landlords decide that the Government’s changes, particularly to mortgage interest tax relief, make continuing in the sector unpalatable.
Recently the National Landlords Association suggested that 500,000 properties would have ‘For Sale’ signs outside because of this. While that number seems slightly over the top, many landlords may be contemplating their exit.
This issue, and its potential ramifications for the market, is a cause for concern for many stakeholders. I have recently had conversations with the rating agencies about what might happen should a number of landlords choose the exit option.
While it is difficult to accurately ‘workshop’ such a scenario, it is possible to find both good and bad in what may happen. For instance, the greater supply of properties is likely to mean that prices drop back slightly.
However, if the Government is right, this supply will be taken up by first-timers, including those utilising the Help to Buy Scheme, and over time this should see prices move back up to current levels. But in the private rental sector this scenario means fewer properties will be available, which will push up rents – improving yields and making it far more viable for landlords to grow their portfolios.
The winners and losers should be obvious but, if this plays out, those landlords/investors who are able to preserve their investment for the medium to long term, and even add to portfolios, should be well justified in maintaining their presence in the buy-to-let market.
This may be a message that advisers will want to issue to their existing landlord clients because any short-term drop-off is likely to turn into longer-term growth.
Bob Young, Fleet Mortgages
Frightening uncertainty or intriguing high drama?
Two months after the announcement on the in/out referendum on Europe and no one could have foreseen the political and economic drama already unfolding.
Boris Johnson has declared for Brexit; Ian Duncan-Smith has resigned; and Mark Carney says some financial institutions could flee abroad in the event of an exit.
Meanwhile the Bank of England announced another hold on interest rates and said they could stay this low for nearly three years, prompting a slight rally in sterling.
In February, 36 major companies signed a letter supporting EU membership and the Financial Reporting Council has told firms to disclose any risks related to Brexit in their annual reports and accounts.
There is still much manoeuvring to be seen and many debates to be had. The mortgage market implications are almost impossible to predict as so much of it relies on information that very few of us have. Politically, a probable result of a Brexit would be Mr Cameron’s end of tenure sooner than expected – replaced by an ex-‘Have I Got News for You’ pundit.
Richard Pike, Phoebus Software