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A Word on the Mortgage Market – Feb 2023

A Word on the Mortgage Market

Hello and welcome to the first A word on the mortgage market for 2023. It’s probably (definitely) too late to wish you a Happy New Year, but as this is the first time we’ve made our way into your inbox this year, we’ll do it anyway. Happy New Year.

As always, we have much to discuss. This month we’re looking at mortgage rates, the debate on fixed rates versus trackers, why you shouldn’t just accept a lender’s offer on product transfers, and the rise of second charge mortgages and their very real benefit for many borrowers right now.

So, without further ado, let’s get to it.

Mortgages as Bank Rate hits 4%

Yesterday, The Bank of England voted to yet gain increase Bank Rate, pushing it to 4% for the first time in many years. As we keep saying, these rises are not unexpected, so please don’t panic. 

Given the grief that the Bank has received from many corners that they simply did not act quickly enough in this interest rate cycle, it’s not surprising that they are flexing their proverbial muscles now. The latest market wisdom suggests that Bank Rate may hit 4.5%, although some commentators are suggesting we may have hit the peak.As is normally always the way, this rise has been factored in by the market and mortgage lenders, so we are not expecting to see swathes of products being pulled and rates rising. We prefer to look to Swap rates to give a better indication of the direction of travel on mortgage rates, and they continue to edge downward. When we spoke to you last, just before Christmas, 5-year Swaps were at 3.7%. They now sit at 3.25%, coming down 0.25% since yesterday alone. This movement has been mirrored in the fixed rate mortgage market, with rates slowly coming down. 5-year fixed rates can be obtained for a smidgen over 4% at the time of writing.

Fixed vs tracker

One of the questions we are increasingly being asked is whether fixed rates still present the best value for borrowers or whether there is better news to be had in the tracker and discount markets. It’s impossible to answer this generically, but there are certainly a range of products that look worth consideration. And the good news is that some of them come with no Early Redemption Charges, so you can drop out of those and lock into a fixed rate at a later date, should that prove to be a sensible approach to take. As always, as self-serving as we know it is, only a good adviser will be able to provide you with the right advice.

Did someone say price war? 

We are already seeing that lenders have realised that their business pipelines have reduced dramatically and, instead of putting up rates to stop the flow of business, they are cutting rates to attract new business. Several of our lenders have described this as a price war. They’re probably overdoing it there. Maybe a battle. At least for now.

Don’t accept a lender’s offer to switch

Given those aforementioned reduced pipelines, many lenders will try and grab a quick win by offering you a product transfer rate that suits their appetite. But the chances are, there will be better rates in the wider market for you. In our second self-serving statement, speaking to us before you do anything makes sense. If we think you are being offered the best deal for you then we’ll tell you that. But if we think that you can do better. Well, you get the picture. It’s a minefield out there, so getting advice that’s tailored to you and you alone is crucial.

The rise of second charge mortgages

We have previously spoken to you about second charge mortgages. We get that they sound like a bad thing (they could do with a rebrand), but they are really coming into their own right now.

They offer genuine value for those that need to raise extra funds but don’t want to give up the comfort of a great rate on their main borrowing. Of course, it’s all very well and good us saying this, but perhaps an example would help to show you why.
 
We recently helped a client raise a further £60,000 on their borrowing for home improvements. They had an existing fixed rate of 1.26% on a mortgage of £600,000. If they remortgaged away from that rate, they could expect to be paying around 4.5% for their total borrowing. However, they took the additional borrowing of £60,000 on a second charge rate of 11%. That double digit figure may make your eyes water, but when you combine the borrowing together, the amalgamated rate they are paying across both products is 2.15%. And that’s considerably better than 4.5%
 
To be clear, this is a high-level example. There’s lots of complicated maths that goes into the process and, as always, only specific advice for you will do. But hopefully it shows you that a little bit of creativity can make a big difference. Certainly, some food for thought.
 
That’s it for this edition, other than to say do keep in touch with your adviser. You can, as always, find their details at the end of this email. See you next time.

 

What should borrowers do now?

As the summer began, the choice of what type of product to take wasn’t really much of a choice. Fixed rates offered great value in most timeframes. Yet, for some, that may well not be the case anymore.

We believe that the time has come to at least consider not only trackers, but also discounted mortgages – discounts tend to be the domain of the medium to small Building Societies, who may see this as an opportunity. As we write this, borrowers can obtain discounts from lender’s Standard Variable Rates (SVR) with initial pay rates in the mid 2% range. Clearly, the discounts will go up as Bank Rate does (although of course lenders don’t have to follow these rises), but logically, if say Bank Rate goes to 4% (up another 1.75%) then you’re looking at pay rates on these discount products of around 4.5%. And, right now, both 2-year and 5-year fixed rates are already above 5%.

We could spend significant words and take up more of your valuable time going into lots of detail on this, but that would all be a bit generic. And that won’t do right now.

The key messages
What is clear, as we said just a few words ago, is that generic advice simply will not do. It’s absolutely crucial that you keep in touch with your adviser and discuss your own unique situation. There are so many variables in deciding what’s best for you, such that only detailed advice will do.

If you need extra funds and you’re currently sitting relatively pretty on a decent rate, then you should consider other ways to raise these funds. Whilst they may not sound particularly appealing, second charge loans are a good way to get more money without having to move your main mortgage and it may well mean that you are financially better off when it comes to your total monthly payment outlay.

And finally, please remember that we are here for you. If you’d like to discuss anything at all then please just get in contact with your adviser who will be only too happy to help.