Mortgages
Lenders’ margins on mortgage products have hit an all-time high over the last week, as the difference between the rates paid by borrowers and the cost of swap rates has widened substantially. The average swap rate on two-year fixed rate money currently stands at 126 basis points (bps), or 1.26%, while the average interest rate charged on a two-year fixed rate mortgage is 4.55%, resulting in an unprecedented lender margin of 3.29% on these products.
Two years ago the margin on a two-year fixed deal stood at 1.28%. The margin leaps even higher to 3.35% on an average five-year fixed rate product and 3.57% on a three-year fix. Michelle Slade, spokesperson for Moneyfacts.co.uk, said: “Mortgage rates are falling, but only a fraction of the reduced funding cost is being passed on as lenders continue to repair their balance sheets. Borrowers will be angered that they continue to pay the price for mistakes made by lenders, particularly those who have accepted government funding.”
Moneyfacts calculates that, going forward, were Bank Base Rate to rise as quickly as it has fallen, and were lenders to maintain their current margins, the average rates charged to borrowers on mortgages could reach around 8%. Slade said in the current market mortgage availability and the maximum loan sizes continue to improve, but there is still a long way to go before any reasonable normality is returned. “Swap rates are the traditional barometer of fixed rate mortgages, but with lenders still nervous of entering the money markets, many are opting for on balance sheet funding through their savings book.”
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The Key to placing business for clients with the right lender the first time, is understanding the clients requirements and the lender requirements. Due to the “Credit Crunch” lenders are a lot more cautious as to what they will and will not take on, they are a lot more selective with regards to the right client and are now all looking for the ideal client i.e. that client with the 40% deposit and who is able to provide a substantial income.
The reality is that these clients are few and far between, the key is therefore keeping up to date with what lenders will and will not consider and keeping a constant dialog with lenders to understand fully what they are looking for. I recently help an American couple who have just over 2 years remaining on working visa in UK and who have only been in the UK for 9 months. They had initially been turned down by one lender who unknown to the clients had altered their requirements for non-UK nationals.
Mortgage Broking is complicated, lenders move the goal posts on a regular basis, it is important for clients to confident that their Mortgage Broker is working for them and concentrates on mortgages solely. Be aware of the IFA who tries to do it all, i.e. Pensions, Investments, Insurances, Mortgage Broking, you would have to ask yourself how are they able to keep up to date with all of these complex areas of financial advice with only 24 hours in a day?
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The number of borrowers on lenders’ Standard Variable Rates is now 2.3 million, representing 28% of the total mortgage market, according to Yorkshire Building Society. Again this week the minuets for the Bank of England last meeting came out with 1 member recommending an increase in rates. An increase in the Bank of England Base Rate will come, whether this is late this year or early next year, but it will come. Therefore, it would be a good time to now to consider moving onto a fixed rate deal as these deals are currently offering excellent value. The advantage of the fixed rate will be that you will avoid the hit as rates start to rise over the next 12-18 months. There are now a large number of competitive deals available for 2-year fixed rates at under 3.50% and 5-year fixed rate deals can be secured at around 4.35% and above.
Who should consider remortgaging, well currently anyone who is on a Standard Variable rate of 3.50% or higher, anyone with 15% or more equity in their property, someone with no adverse credit and anyone who has the ability to evidence their income. However, if you are with the Halifax you are also able to consider a product transfer this all depends on product wants and loan to value. If you would like to discuss the options open to you for a remortgage please do not hesitate to contact us.
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- Fantastic news this week in that the Skipton Building Society have come back to the mortgage market with a new range of products. They are offering a range of 2 and 3 year fixed and tracker deals with competitive fees for both purchase and remortgage. They are also offering a couple of exclusive products at 90% loan to value which will bring some much needed competition to this end of the market.
- The FSA has announced today in a consultation paper that they are going to stop lenders from offering ‘Self-Certification’ and ‘Fast Track’ mortgages to both employed and self-employed mortgage applicants. What does this mean, that going forward everyone will have to provide evidence of income from employer, bank, accountant or HMRC. As usual this is the FSA with their finger on the pulse of the mortgage industry. As any Mortgage Broker will tell you ‘Self Certification’ mortgages have not been available for the last 12 months, a classic example of the mortgage market regulating itself in spite of the regulator.
- With the end of ‘Self Certification’ mortgages the question is now open to Accountants what stance will you take for clients? Help them pay as little tax as possible so lowering their Net Profit or pay more tax have a higher Net Profit and be able to afford that next house purchase or remortgage?
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The Cambridge Evening News has today confirmed what we have being seeing first hand over the last 12 months, that house prices in Cambridge have jumped up well above the National trends. We believe that this increase is having an effect not only on Central Cambridge but also on all surrounding villages and Towns.
As a result of these increases in house prices, it is now more important than ever to get fully independent advice with regards to your mortgage and to get an early understanding as to your full borrowing potential. Please do not hesitate to contact us if you have any questions as to how differing lenders assess individuals and decide how much mortgage they can raise.
The full article from the Cambridge Evening News website can be found at http://www.cambridge-news.co.uk/Home/City-house-prices-soar-60000-in-just-a-year.htm
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