This 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.
- FTBs more concerned about tighter budgets and how much they can afford to borrow
- NatWest release tracker products
- Cash king in the high-net-worth property market
FTBs more concerned about tighter budgets and how much they can afford to borrow
Amid rising energy prices, interest rates and soaring inflation, more first-time buyers have been directing their questions from ‘how much can I borrow’ to ‘how much can I afford to borrow’. We are seeing far fewer first-time buyers exploring their borrowing potential, including stretching their affordability and maximising income multiples. Instead, more first-time buyers are discussing what can be achieved around a certain budget as concerns around rising costs influence their decision making and higher interest rates bringing these payments up.
- Younger borrowers who have only known mortgage rates over the last decade are likely to face a huge shock over the next few years especially if rates continue to rise. FTBs who purchased their first property in the last few years may have naively maximised their borrowing without experience of periods of higher interest rates. Now, these borrowers may be reaching the end of their two-year fixed mortgage rate and be faced with higher mortgage rates and soaring inflation. The Bank of England 3% stress test on mortgages was applied to protect borrowers for this very reason, but it sounds like sacrifices will need to be made by many.
- Mortgage costs have increased as a proportion of monthly expenditures, as well as other necessities including food and energy bills. For younger borrowers who may have lower incomes or fewer savings to absorb higher costs are likely to be more vulnerable to the consequences of rising prices and a cost-of-living crisis.
NatWest release tracker products
Effective from Tuesday 6 September 2022, NatWest has launched tracker products and implemented some fixed rate increases in pricing. This is not the first time NatWest has launched tracker products, however, while we haven’t seen this from other lenders as of yet, we do expect to see more lenders follow suit in the current economic environment.
- These changes by NatWest are definitely a sign of the times. The launch of tracker products could be due to lenders looking to offset risk from a lending perspective and balance their books. As tracker mortgages follow the Bank of England base rate for a specified period, lenders can be assured these rates will be more accurately priced in line with base rate movements. Thus, limiting the risk of a lender possibly setting their rates too low and being unprofitable, especially as fixed rate mortgages become more difficult to price accurately.
- Likewise, taking out a tracker product instead of a fixed rate could be beneficial for those willing to take the risk. This could involve saving on interest payments if these rates remain below their fixed rate equivalent for a certain amount of time and also many tracker rate products come with no early redemption charges so this could save a borrower money if they decide they need to move / circumstances change
Cash remains king in the high-net-worth property market
Cash remains king in the UK housing market in particular for those purchasing higher value property, where we have noticed, if looking to move, more borrowers are deciding to refinance other assets they hold early to raise money for future purchases.
- Recently, we have seen more buyers of high-value property consider methods to raise cash to avoid current high lender timescales and likewise the long transaction timescales from offer to completion. Some sellers are prioritising lower cash offers instead of buyers who require a mortgage in order to complete a chain, especially with the increased property transaction timescales at the moment the shorter the chain the better. Linked to this we have also seen an increase in bridging loan enquiries for the high net worth to put them in a chain free / fast moving position when buying a property.
- We have seen similar trends where clients are seeking out options to raise cash for purchases. One client was looking to upsize from a £2.5m to a £5m property, however instead of selling their current residence to finance the purchase (they had concerns about selling high-value property in the current market), they were looking at taking out a BTL or let-to-buy mortgage to raise the cash required and own both properties for now. They also preferred to pay cash to avoid being part of a chain.
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