Private Finance Mortgage Memo

is our take on what is currently happening in the mortgage market. Our views
are often cited in several national publications, including; BBC News, The
Times, Telegraph, City AM, FT Adviser and Daily Mail, as well as a number of
key trade publications, so this should keep you ahead of the curve. If you have
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  • The BoE base rate decision – Our predictions on rate reactions
  • Existing customer rates a key battleground for lenders
  • Landlords forced to dramatically increase rent to break-even  

The BoE base rate decision – Our predictions on rate reactions

We have noticed some rate reductions ahead of the Bank of England’s announcement on the Base Rate tomorrow (3rd November), in both our weekly tracking of the best available rates in the residential market and from some lenders, including Nationwide, HSBC, Platform (co-op) and Virgin, especially on the longer-term products.

How will lenders react to tomorrow’s base rate announcement?

As financial markets are expecting a large increase of 75 bps in the base rate, many lenders will be prepared for an increase of this level, and consequently, rates will largely not be impacted by the rate decision unless there is an unexpectedly large rise.

We have already witnessed significant jumps in fixed-rate mortgages after the market reacted to the disastrous mini-budget. Lenders are more likely to adjust their rates down rather than up following Thursday’s announcement, a contrast in rate direction compared to previous base rate rises. We have even had some lenders feedback to us recently that they know they are pricing significantly above where they could, but if they were to reduce rates, they will do it slowly as to control business volume.

What about variable and tracker rate mortgages?

We will see increases in variable and tracker mortgages following the base rate increase, however as fixed mortgage rates still remain significantly more expensive, many borrowers may still prefer to go for a tracker mortgage instead of a fixed rate for now, especially if there are no ERC’s as this offers greater flexibility.

Existing customer rates a key battleground for lenders

Offering competitive existing customer rates has become a key battleground for lenders. Where previously Nationwide’s rates for existing clients were more in line with their new business range, they are now offering current customers significantly better rates following a recent large rate reduction. They are not alone, many other lenders like HSBC and Natwest have reduced their existing customer ranges to levels below their new business ranges.

Why are some lenders reducing rates for existing clients?

Rate reductions for existing clients has been a common theme lately. This suggests that while lenders are in a better position to review their product costing and look at lowering these rates after the chaos in the swap rate market recently, they are initially focusing on existing business with a view to retaining these clients, as it is cheaper than attracting new business and is the right thing to do for their customers / will minimise arrears.

It makes sense that lenders will focus initially on bringing down rates for existing clients rather than for new business, considering the high service levels and uncertainty in the market at the moment.

Landlords forced to dramatically increase rent to break-even

We are starting to see examples of our landlord clients who cannot remortgage their buy-to-let property unless doing a product transfer with their existing lender due to significant changes in the buy-to-let market and higher rate environment. We have seen a few examples in the last week where Landlords find themselves having higher mortgage payments than the rental income that is collected, and they therefore are forced to do a product transfer.

Landlords also have to pay tax on that rental income especially if owned in a personal name and this means many Landlords are having to dramatically increase rent in order to just break-even on their buy-to-let(s).

The market has certainly become tough for landlords, and many will find their business models are not viable in this high-rate environment with tougher legislation.
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