Welcome to Q2. I know, where did that come from?
Spring has sprung since we last met; something I know for sure not just because the clocks have gone forward but because today, as I write, my hay fever has started abruptly. Cue itchy eyes, sniffling on a grand scale and a hurried search for antihistamine.
Once again I approached this episode of Market Watch with trepidation as to subject matter, but then it hit me — the realisation of what we had already experienced this year.
For BTL to get back to any kind of decent level, we need more lenders to look at ICR rates
It seems extraordinary to think that, in just the past few weeks, we have seen both a former prime minister and a former president hauled over the coals and questioned, with one even indicted for a range of alleged misdemeanours.
Meanwhile, we have edged further away from the wreckage of another former PM’s ill-judged economic plan and emerged, in late February and March, into a more ‘normal’ market. However, that normality has itself been on the edge, threatened by the shadows of 2007 as Silicon Valley Bank and then Credit Suisse needed to be saved.
Uncomfortable echoes
For those of us who lived through the ‘credit crunch’ — though I appreciate how different things are now — there were still enough uncomfortable echoes to make many sit up and anxiously take note.
It seems the housing sector may be gearing itself up to be one of the big battlegrounds of the general election
I have re-read my blogs from that time, and the common theme between then and now is the fact that central banks were increasing interest rates to curb inflation. Higher interest rates, especially when they are increased faster than expected (thank Truss and Kwarteng for that), often expose potential issues in financial institutions.
They say a week is a long time in politics, but a day is an eon in the financial markets. In the space of a few days, we saw the contradictory effects of a banking drama pushing rates down on the one hand, and the surprise rise in inflation pulling in the opposite direction. It was almost seen as a foregone conclusion that inflation would fall further to finally dip back under 10%, but a rise to 10.4%, fuelled by extraordinary rises in food costs, caught every economist by surprise.
That said, everyone who does a weekly big shop was not in the least bit surprised.
These opposing forces left the Bank of England with no real choice than to increase rates by 0.25%, with doing nothing not an option and 0.5% going too far.
Time-out
What happens next is up for speculation, but I believe the Bank should now take a proverbial time-out and give both the public and the markets time to breathe and settle. A period of calm is imperative, and rate rises take time to filter through and have an effect.
Many conveyancers are not willing to proceed on some of these properties and contracts with cladding issues
There is a saying I have heard recently, that central banks tend to go too far and stop only when something breaks. Potentially we are at that point.
We also had a boring Budget, which was pretty much what we all needed. Although there was nothing on housing, it seems this sector may be gearing itself up to be one of the big battlegrounds of the general election.
Mr Gove has been saying that the UK housing market is “broken and desperately needs more homes”, as well as threatening builders’ “nether regions” if they do not sign up for cladding remediation. Endearing image, eh? That has put me off my late-night Horlicks!
Talking of cladding, this is still a mess. Lenders and surveyors have improved, though there are still some difficulties, but now there are many conveyancers that are not willing to proceed on some of these properties and contracts.
A period of calm is imperative, and rate rises take time to filter through and have an effect
What has all this meant overall for mortgage rates?
Looking at the markets shows us that three-month Sonia has increased by a significant margin to 3.72%, while swap rates have slumbered back down into a hopefully comfortable snooze.
Since the previous column:
2-year money is down 0.42% at 4.08%
3-year money is down 0.44% at 3.87%
5-year money is down 0.38% at 3.63%
10-year money is down 0.37% at 3.34%
Despite the fact the Bank of England increased the base rate to 4.25% — and there could be one more movement to come — the end of Q1 seems finally to have fired the starting gun for some lenders to come to the lending party.
We now have more than a couple of lenders that have five-year fixes starting with a 3. In fact, 12 lenders have some kind of offering starting with a 3.
It does seem that swap rates have stabilised at this slightly lower level. This means there is still room for competition between lenders and I expect we shall see this hot up.
The common theme is the fact that central banks were increasing interest rates to curb inflation
As we enter the buoyant spring season, we are already seeing activity and demand pick up. I suspect many more prospective buyers will want to take advantage of the current climate, having had their lives put on hold for the past few months, or even years, as they waited for stability.
In the lending world there have been a few things of note, with NatWest the latest big lender to come out and cut rates. We could see a mini version of ‘rate wars’ finally taking shape over the coming quarter.
Metro Bank has relaunched into 90% loan-to-value residential lending, including new-build houses and flats, which is most welcome, while Leeds Building Society has added a couple of 95% LTV products starting at 5.37% with a free valuation.
In a sign of the times, Nationwide has made it easier to cancel a rate switch, which is helpful.
In the buy-to-let (BTL) space, The Mortgage Works has launched some new low-LTV products at 55% LTV, while the lovely Landbay has relaunched some ‘green’ five-year fixes to encourage landlords to upgrade properties.
The Bank should now take a proverbial time-out
In another welcome move, Accord has cut its BTL interest coverage ratio (ICR) rates by up to 1% to more realistic levels. For BTL to get back to any kind of decent level, we need more lenders to look at these ICR rates.
Finally, it is always good to see the mortgage industry come together for charitable causes; something we do so well. So good luck to Pam Brown and co, and those walking the Three Peaks, and all those doing other remarkable things. Also, well done to people like Charles Morley of Metro Bank, after his latest marathon exertions.
I am sure there will be many more out there showing the very best of this fine industry.
Hero to Zero
The emergence of more sub-4% mortgage rates — this will be a relief to many borrowers
Lenders like Accord that have cut their ICR rates on BTL
The excellent lender and Ami podcasts — these can be of great value to brokers
Reports that new housebuilding starts have fallen by 51% year on year — will we ever build the housing we need?
Echoes of a banking crisis — this is the last thing anyone wants
Yes, I’m still angry with Truss and Kwarteng
What Really Grinds My Gears?
I wanted to pick up on Mr Gove’s recent comments that the housing market is broken and “desperately” needs fixing. If only his party had been in power for over a decade and could have had some real time to fix it. Oh, hang on….
Don’t worry, this is not a chance for my Champagne Socialist leanings to emerge because, quite frankly, no government on either side of the Commons divide has really got to grips with this.
What we have seen is a lot of demand-side policies that have increased house prices and given more power to builders. They have been able to keep prices high with a mixture of ‘incentives’, with which I have never agreed, and not come anywhere near building the amount of affordable and social housing we need.
Currently there is a lot of fanfare from the Conservatives around the Levelling-Up and Regeneration Bill, which will devolve more powers to local areas. But will it really make that much difference, especially when the national housing target is effectively axed? Not since the 1960s have we consistently built more than 300,000 homes a year.
With housing looking like the battleground for the next election, it is finally time it was taken seriously and dealt with as a national crisis. This means parliament coming together to form a cross-party long-term plan under an experienced property tsar.
We have too few homes to buy or rent, a lack of affordable housing and little social housing in the areas people want and need to live in. Then we have the Green debate.
Something has to give.
Andrew Montlake is managing director of Coreco
This article featured in the April 2023 edition of MS.
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