Market awaits Year End movements at Banks

Many leading financial instituations with a 31 December Y/E will be adopting the well practised approach of hording cash on the Balance Sheet on the final day of the year.

In normal times they would unwind these positions in January and LIBOR and Bank Base would be closely matched by the month end. However with the prospect of another 1% or more Base Rate cut in January on the back of deepening economic gloom the opening meeting of the MPC (announcing on Thursday 8 Jan 2009) could boost the premium even further in the short term.

However this will lead to further reductions in SWAP rates and lenders will start to roll-out new domestic and Buy to Let products in the coming weeks. The issue may well be that "demand exceeds supply" so letting your broker know what you want by way or pricing should precent disappointment if lenders come to market only with limited tranches. We can then notify you when funds are launched that suit your purpose.

2009 will be an interestring year with some good opportunities - the NAEA are predicting a property spike already as there could be a shortage of stock with very few new homes coming out of the ground.

Merry Christmas and here's to a better 2009!

To new and regular visitors to our Buy to Let Blog, I would like to wish you a very merry Christmas and a happy & healthy New Year. 2009 will be a tough year but as always, Mortgages for Business is well placed to advise and assist with your funding options.

Base Rate looks set to reduce further (don’t be surprised to see a further 1% cut as early as January!) and I predict that Base Rate will fall below 1% before the half year. Great news for all those on Base Rate tracker mortgages and many portfolio landlords will see improvements to cashflow as those tracker mortgage repayments continue to fall in the New Year.

The availability of Buy to Let mortgages remains an issue and despite the rapid fall in Base Rate, lenders will be taking a cautious approach going into 2009. The 3m Libor rate remains a full 1% higher than Base Rate and despite the Treasury’s efforts to get Banks lending to each other again, it may still take a month or two before confidence returns to the money & mortgage markets. That said, with SWAP rates bottoming out, I would expect to see the introduction of attractive 3 and 5 year fixed rates early in the new year and I would strongly recommend landlords to consider locking into decent 3 and 5 year money early in 2009. Mortgages for Business will continue to keep landlords updated as new products are launched.

With the New Year will come opportunities for those landlords who are in a position to purchase and add to their portfolios. Whilst there are many economists predicting a further 10 – 15% reduction in house prices, many landlords are taking advantage of the current climate and snapping up bargains where possible. Funding for purchases is available but as mentioned in previous blogs, lenders are looking for minimum deposits of 25-30% and investors should be prepared to pay more commercial type rates for what, in essence, is a commercial transaction. Our Landlord Information Zone can give you more insights.

I will update you further in the New Year when we should get a clearer idea of lender appetite and product availability. In the meantime, enjoy the festivities and all the very best for 2009.

3 month LIBOR continues to ease slowly

There will be a limit to its downward movement towards the end of the year as those banks with 31 December year ends preserve cash on their balance sheet and let creditors rise accordingly. Effectively it may not go much below 3% in the short term yet with Base Rate at 2% it needs to get going again early in the New Year as pressure for another 0.5% cut down to 1.5% rises on the back of ever declining economic data.

In more rational times the MPC would wait until the retail sales figures for December were available along with preliminary January Sales from the major high street stores as well as the Quarterly inflation figures ahead of the February MPC meeting. But these are extraordinary times and with many retailers already having Sales in November and December, I am left wondering what they have left to discount come January - indeed, with rising unemployment and general consumer nerves, will anyone be out spending anyway ???

So a cut to 1.5% in January might even be followed by a further cut of 0.5% in February bringing BBR to a historical low of 1%. There will be little purpose to driving BBR even lower as bizarrely this may start to push SWAP rates up as the prospect of inflation will bring forward the time when rates start to go up again. Far better to provide a longer period of stability within which borrowers in all walks of life can source attractive fixed rate Buy to Let mortgages at all time lows.

Buy To Let lenders have a few products below 5% (the best is currently a 2 year fix from The Mortgage Works at 4.49%) but this number should increase in January. 

Another encouraging sign is the number of products on our Buy to Let Sourcing System (now branded Morgage Flow) has risen in the past week to 109 different morgages. We expect this number to grow from mid January onwards........ 

LIBOR, SWAP rates, base rate and interest rates - we're seeing history being made

The Bank of England's decision to further reduce Bank Base Rates (BBR) in December, to rates not seen in over 50 years, demonstrates the analysts view of the severity of the current economic turmoil.  Whilst we don't appreciate it at this time, history is being made and events now will be talked about long after we are gone.

The reaction of the banks in setting LIBOR and SWAP rates over the past week have followed a similar trend to that displayed following the two previous BBR reductions in October and November.  As before, SWAP rates have reacted much quicker to the changes with 1 and 2 year money currently standing at 0.45% and 0.91% over BBR. These rates have fluctuated in the past few days, but the trend is still downwards from their peak in late June.  

LIBOR however, has again dragged its heals and although there has been much criticism of the banks to stimulate the flow of money, LIBOR remains well above BBR. Following the latest Bank of England rates decision, LIBOR sat at 1.72% above BBR.  This fell by 0.34% to 1.38% over BBR the next day, but this was the last significant fall.  Since then, LIBOR has fallen more modestly, but still remains stubbornly well above BBR.  As at today, it is 1.25% above BBR a far cry from the 0.02% below BBR in January 2008. 

As many lenders fund off of LIBOR, or set their rates for a 3 month period, it has meant that despite the reduction in funding costs, not many of the lenders have yet adjusted their rates.  Two of the best known names TMW and C&G have reset their Buy to Let rates this week and it is rumoured BM Solutions may have some new products just before Christmas.

 

With Christmas around the corner and some lenders also reaching their year end on 31st December, the speculation is for little activity from the lenders until January, when they will look to get 2009 off to a better start than 2008 has finished.

More needs to be done by the banks to ease borrowing rates.  The first signs have appeared in the residential sector, with new products in the mid 3% region, which appears to have increased the number of buyers in the market.  The lenders need to regain some confidence on buy to lets, hopefully this is not too far away.