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
any questions on any of these stories, or would like further information,
please do not hesitate to get in touch.

  • Lenders move stress rate on BTLs to allow for less borrowing
  • ERCs slashed on 5-year fixed product
  • Rates rise rapidly in anticipation of base rate rise

 Lenders move stress rate on BTLs to allow for less borrowing

Recently lenders have increased their stress rate for BTL lending, for Santander the move was from 145% at 4% on a 5-year fixed to 150% at 4.25%, this means for a rental income of £1,000, the maximum loan would reduce from circa £206k to £188k.

  • Similarly, Metro increased their stress rate from 140% at 3.5% to 140% at 4%, a reduction from circa £244k to £214k on the same £1,000 monthly rental income for a landlord. Metro falls under a similar line of specialist lending as Molo, who suspended their BLT product range temporarily last week due to funding and there may be some association here with Metro trying to not get inundated with applications now no longer proceeding with Molo.
  • This change potentially indicates lenders are worried about the BTL market and long-term rental voids moving forward and looking to mitigate risk in this area amid tenants facing rising rentals costs, the average cost of rent for property in England rising by 0.5% to £1,012 in April, combined with soaring inflation and a cost-of-living crisis.
  • For more information on the national rise in the UK cost of rent and the national average void period increase in April

ERCs slashed on 5-year fixed product

Many lenders have been changing their ERC structure in the last year or so. For example, one client whose offer was with Barclays in March for a 5-year fixed product with early repayment charges (ERCs) of 3%, now this charge would be 2% if taking one of their new products following this change. This would save the client up to £18k in this new structure if they were to leave their product early (as they are borrowing £1.8m).

  • This change could incentivise more people to opt for a 5-year term because there is less risk if they do need to pay off the mortgage.
  • There is further innovation that could be had in this space. For instance, if there is less than 6 months remaining on a fixed product and the interest payable to the lender is less than the ERCs, it may make more sense for the client to pay the remaining interest on the loan rather than pay a large ERC. From speaking with other lenders there are others looking to potentially change their ERC structures this year to bring them more into the 21st century and the current property/finance market.

 Rates rise rapidly in anticipation of base rate rise

We have witnessed significant increases in the best available mortgage rates this past week, both for residential and BTL products. The most significant rise being in the latter with the best 2-year BTL fixed rate product which increased by 0.25% this last week.

  • Rates rises always accelerate in anticipation of a base rate rise, and thus it is no surprise that we are seeing this with the next MPC meeting scheduled for tomorrow (5th May) amidst an ever-increasing inflationary economic landscape.
  • It is interesting to note that there is now only 0.06% separating the best 2-year fixed residential product from the best 10-year fixed and only 0.01% separating the best 3- and 5-year fixed residential products from the best 10-year fixed – effectively they are all on parity and this is indicative of the cheaper cost of longer term institutional borrowing and how lenders also view this as a less risky lending proposition.
  • While some 10-year fixed rates have remained competitive, in the last week we have seen several private banks significantly increase their longer-term fixed rates, for example Coutts and Investec, perhaps indicative of the level of take up they had for these products while they were highly competitive.
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