As mortgage rates continue to rise in the face of stubbornly high inflation, expert guidance is more crucial than ever
Worse-than-expected inflation data has certainly caused some housing market jitters in recent weeks but now remains a good time to lock in a mortgage deal guided by expert advice.
While the UK’s headline inflation figure has begun to drop, it didn’t fall as far as either economists or the Bank of England predicted. Food prices, meanwhile, remain close to record highs and core inflation – the change in the cost of goods and services minus energy and food – also rose, to a 31-year high.
Inflation not subsiding as quickly as hoped has led to some analysts increasing their forecasts of how much UK interest rates will go up. This has, not unexpectedly, played into lender actions. Many raised rates throughout May – tracking website Moneyfacts found that average rates rose by 0.4 per cent in a fortnight – and many products were pulled from sale so they could be repriced.
SWAP rates have increased following these inflation figures; the increase in lender interest rates has been fed by this as well as lender processing times. Increased business levels mean some lenders are increasing rates from a processing perspective rather than simply market fluctuations.
However, while it may seem wild and windy on top of the waves of the UK economy, underneath the waters are significantly calmer, and navigable with experienced captains.
Expert advice and guidance have never been more valuable – or valued – and this is reflected in the eight per cent increase in enquiries we received from April to May. Other notable figures which point to continued confidence in a) a market recovery and b) the ability of expertise to guide route-finding through tricky tides include a 58 per cent increase in buy-to-let enquiries (including buy-to-let purchases in a company name), a 38 per cent increase in first-time borrower requests, and a 33 per cent increase in the number of lifetime mortgage enquiries in the same period.
Looking to the near future
So where do we think the market is going from here, and what is the key advice to anyone either looking to buy or remortgage in the current climate? The answers – given what we’ve set out above – we are cautiously positive.
If headline inflation continues to drop, as we expect, and core inflation also starts to fall as hoped, then we anticipate that the Monetary Policy Committee’s meeting later this month will see one base rate increase, with another projected increase in August. This would hopefully represent a rates peak. They are then projected to start dropping from Q2 of next year from a retail pricing view, as the retail rates tend to shift before the official bank rate does.
What does that mean for me?
Our key advice to clients in this climate is to hedge your bets – lock in a rate now, which we will be able to change for the full length of the offer period if rates do start dropping. This buys certainty while allowing flexibility.
While deals being pulled from the market hit the headlines, what has not been so widely reported is that some lenders have also used this as an opportunity to make other policy changes. Many of these have increased income multiples, with the majority of the most popular lenders now able to offer 5.5 times income, based on a strong financial profile. Interest-only policies have also become more lenient, with more lenders now able to offer pure interest only, or interest only past 75 per cent loan-to-value deals.
Word on the street…
Significantly more of our clients are selecting two-year tracker rates in the hope of being able to take advantage of expected rate drops next year. With margins on trackers as low as 0.14% over base this offers an opportunity to take advantage of the market.
Meanwhile, experts across the industry are reporting a growing trend for mortgage terms substantially longer than the standard 25 years, as clients look into options to make borrowing what they need more affordable.
Trend data – what we’re seeing
With summer looming, many investors are exploring the potential of holiday lets rather than standard buy-to-let properties. This is fuelled by the post-Covid staycation demand remaining strong, and the many tax benefits of doing this.
In the commercial market, many clients are still looking to switch their personal buy-to-let properties to a special purpose vehicle (SPV), due to the enhanced tax benefits of having a property in a company name.
As always, the Henry Dannell team is here to provide expert advice and guidance which will enable you to make informed decisions. Get in touch with us to find out more about our offering and how we can help you achieve your mortgage goals.
Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.