Mortgage Market Overview

Interest Rates

At the start of May average rates have eased further in all categories – average two, three and five year fixed rates declined by 1bps, 5bps and 3bps respectively to 2.54%, 2.86% and 3.17%. Two year BRT also eased by 2bps to  2.06%.  In the buy-to-let arena, average fixed rates on two years declined by 4bps while three and five years remained unchanged from the beginning of April – this left rates at 3.28%, 3.87% and 4.00% respectively.

Mortgage Products

Mortgage product numbers broke through the 20,000 level for the first time since 2008 after experiencing another increase of more than 1,400 products within the broker sector alone. The last time mortgage product numbers were at this level was just prior to the collapse of Lehman Brothers in 2008 which was one of the major causes of the financial crisis. Following that event mortgage product numbers declined almost month on month until the following February 2009 when they reached a low point of only 2,560 products, but since that time we have been on a slow but steady increase to where we now are today with broker products representing 73% of the market.

Market Conditions

The PRA recently issued a public statement in which they commented that they were to investigate underwriting standards within the buy-to-let sector as they were concerned that some lenders were not being as diligent as they would expect them to be.  As a consequence of that and in response we have already witnessed several lenders announce and implement changes to their rental stress calculations, with TMW and Barclays at the front of the move to get out ahead of any regulatory intervention. Other lenders will, we are sure follow suit, as no-one lender will want to be in receipt of all of the business that can only be conducted using a 125% rental calculation, and most importantly no-one lender will want to be last man standing, so expect other lenders to follow suit. With rental stress calculations moving towards 145% at around 5.00/5.50% (and possibly above) as the new normal. Clearly a number of transactions that would be approved today at 125% will fail at the new higher rates and this will weigh further on buy-to-let transactional activity in addition to the changes already implemented on SDLT rates, and the introduction of changes to the treatment of mortgage interest from 2017/18 and onwards etc…

We are now less than one month out from the EU Referendum, and the campaign rhetoric on both sides is becoming increasingly desperate in their respective attempts to convince the British electorate of their arguments. As we commented last month, transactions do not appear to have been unduly affected by the impending referendum, however one of the biggest hurdles facing the market remains the lack of housing stock on the market with the supply/demand imbalance more acute than ever!

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