Increase in fixed rates as "perceived" inflationary pressures start to build

Mervyn King hinted in his Mansion House speach that there were some signs that quantitative easing was starting to work and that the £125Bn injection may be sufficient - I really hope so !!

The SWAP markets had already reached the same conclusion with 3 year SWAP rates bottoming out in February at 2.3%, having hit 3.11% earlier this month but now bacl at 2.98%; we doubt that it will suatain a sub 3% position for very long. And sadly lenders have reached the same view and have been gently pricing upward on prodcuts to absorb a likley higher level of underlying pricing.

On the plus side lenders are looking forwards and starting to initiate discussions about criteria improvements and changes to product profile. Rest assured this has not been a topic of discussion since the autumn of 2007. Two niche lenders are looking at new Buy to Let offerings that might cater for limited companies or HMO properties, albeit at a price. The judgement, thereafter, is whether the ability to raise extra capital and perhaps conclude an additional deal is justifiable against a higher cost.

We will get back to you with an e-newsletter in the next week or two but if you want to chat through any scenarios in the meanwhile we can formulate a plan with you that is ready to go when the lenders start to change their stance.

The importance of BTL Landlords to a housing market recovery

In previous property downturns, journalists and indusrty pundits have focused on First Time Buyers as the necessary first step in stabilising the capital values of property. But this overlooks the role of landlords in the market which historically difficult to track but who in the last 15 years have increased their activity to some 12% of all housing stock.

Critically lenders used to treat residential invetsment and in previous recessions they would continue to advance funds to favoured clients as Business Loans but simply secured on residential property - extraordinary but in 1993 and subsequently we saw many such facilities as landlords sought to increase gearing. From these entrepreneurs from that period came the idea of branding Buy To Let for which Andrew Reeves of ARLA has never received the recognition that he desreves for the phenomenon that followed.

The idea that market recovery depends on First Time Buyers is fine if you are happy to wait for the trickle down effect into 2nd and 3rd time movers as pressure builds up - however Buy to Let landlords are active on the second and third rungs of the property ladder as they tend to seek 3 and 4 bedroom properties that have greater yields. Their issue is availability of funding and certainly in the short term lenders will focus their attention on First TIme Buyers but there are signs of lenders recognising that Buy to Let landlords are more part of the solution than part of the problem.

We are talking actively with existing lenders and potential new entrants to the market to redress the balance and for them to take on board the notion that support to Buy to Let Landlords may accelerate the rate of recovery of the housing market as a whole. If you are still experiencing funding frustrations give us a call - it might surprise you the level of support that might be available.

Base Rate remains unchanged at 0.5%

As expected, the Bank of England have kept Base Rate on hold at 0.5% this month, halting the steady trend of reductions over the last few months. With the MPC’s ammunition more or less spent in this area, all eyes are now on the Bank’s Quantitative Easing programme designed to stimulate the much need liquidity into the market.

As mentioned in numerous blogs and articles over recent days, mortgage rates would appear to have bottomed out and now is the time to act if you are looking for competitive Residential mortgages or Buy to Let mortgages. Our Fixed Rates are proving popular with both homeowners and investors with many borrowers now looking to lock into 2, 3, and 5 year rates before the cost of funds starts to rise over the coming months.

For those of you looking at Commercial Mortgages, there are again some good deals to be done whether you are an investor, developer or are looking for premises for your own business. Despite what you read in the press, Banks are lending and with the cost of funds relatively low, there some very attractive commercial rates available for the right deal.

Never before has it been so important to use a specialist adviser to guide you through the products available. Our consultants are on hand to help with your  finance requirements so please feel free to get in touch – it will not be long before rates are on their way up!

The Turner Review may impact Buy to Let warns Lord Turner

The Tumer Report covers a broad range of sectors but has reserved its judgement on Buy To Let and second charge mortgages until September. If some of the commmentary on how they might restrict Loan to Income multiples might be applied in future goes ahead in its current form (such as 3.5 x Multiple applied whether interest rates  are 12% or 4% rather trhan expressed as a%age of disposable income with in a minimum notional rate to cater for articially low rates like now !!!), then the Buy To Let lenders will be facing an uphill struggle.

There is an essential principle at stake which is being overlooked. Buy To Let is a business activity whether you own one or 350 properties. You are in it for profit and drawing a line between the owner with a single Buy To Let to enhance their overall retirement provision  to the active landlord refurbishing property , extending others, perhaps even selling some to use up CGT gains would require the judgement of Solomon which has been remarkably lacking in the FSA to-date.

In its effort to regulate Buy To Let it is likely that the FSA will create a regulatory monster so as to embrace all the complexities of a Buy To Let property and the business aspirations of the borrower......this might add such a burden to the time and "real" cost of the process that borrowers will approach lenders on a commercial mortgage basis to avoid the FSA paper trail. After all, this is where Buy To Let came form and many professional landlords keep Buy To Let property in "pot" facilities at banks.... or do we think that the FSA proposes to move further up the lending scale to include all aspects of business lending ???

There is also a tendency for some commentators to suggest that the lender and broker to a transaction are giving investment advice to the borrower at point of purchase which is false. Quite correctly the Buy to Let mortgage or loan needs to suit the borrower's needs but whether the investment or is appropriate or will perform over time is the commercial decision of the borrower.

Read the Turner Report here.

Lloyds/ HBOS commit additiomal £3Bn to mortgages this year

The news that Lloyds/HBOS has finally agreed to a deal on the APS will increase its mortgage lending in 2009.

Lloyds / HBOS fell on the sword finally and gave up some £260Bn of "assets" into the APS and in return found  UKFI now owning 65% of its shares and a commitment to increase its proposed mortgage lending from £9Bn to £12Bn this year. The split between pure residential mortgages and Buy To Let mortgages has not been defined but a cynic might argue for a bias towards the former group as that is where votes in any upcoming general election would lie.

An additional £9Bn is also promised to business lending but the challenge as with all these things is proving the benefit ie borrowers actually finding it easier to obtain credit.

You can follow developments on our quantitative easing updates and views page.

Now that Base Rate has dropped to 0.5%, it's time to fix!

As expected, the MPC has continued to use the tools at its disposal and slashed rates again to a record low of 0.5%.

This will of course continue to improve the cash-flow of those borrowers on Base Rate linked loans (without collars!) but unlikely to have much of an affect on new mortgage products.

Only a 3rd of lenders passed on any of last month’s 0.5% cut and I would expect even fewer lenders to act this month. That said, there are a handful of lenders (C & G, Nationwide, Skipton & Halifax) who have Standard Variable Rates (SVRs) that must never be more than a set percentage above Base Rate – they will have no option but to reduce their SVRs. For the rest, don’t expect much movement and for those of you looking to move house or remortgage, I would reiterate that the products available now are probably as good as they are going to get and if you are looking for fixed rate mortgages for your home or Buy to Let fixed rate mortgages over the next 2, 3 or 5 years then now is certainly the time to act.

The additional announcement that the BoE will embark upon £75Bn of asset purchases financed by the issuance of central bank reserves is a welcome move in terms of trying to improve liquidity. Perhaps the most significant phrase in the published statement was "in the first instance" thus demonstrating the BoE's commitment to stimulate the economy with a series of measures if necessary.

None of this will change the economy and, in particular, the housing market overnight but these are alll essential building blocks on the way to recovery.

Northern Rock resumes lending - what will be its impact?

The announcement that Northern Rock is to resume mortgage lending (£14Bn by the end of 2010) is welcome for the mortgage market as a whole but will probably only drive indirect benefit for the Buy To Let sector.

The gov't announcement on Monday that Northern Rock will resume lending on homeowner mortgages with £5Bn this year and £9Bn in 2010 came after weekend speculation that NR would be lending £15Bn - funny how the press always seem to know what happens at NR before any real announcement.

The fact that only £5Bn will be lent in this year is acknowledgement that it will take time to build a pipeline from which to complete the loans. Given that we are approaching the 3rd month of the year this is a pragmatic figure for the remainder of 2009. They have been doing some lending over the past few months so it won't be difficult for then to gear up their operations.

That aside it is good news for the market for the following reasons...................

More money supply and improved lending criteria will help to ease the credit crunch and provide some competition in the residential mortgage market. As a consequence real lending margins may reduce slightly.

Whilst NR are unlikely to promote Buy to Let mortgage lending (they do actually have a couple of pricey Buy to Let products) the element of competition may encorage other lenders to switch some resources from residentail to Buy to Let lending.

Additional funding for personal residential mortgages is a pre-requisite for stabilising the housing market as a whole and much of the Buy to Let property is First Time Buyer or Second Mover property which will receive an uplift if homeowner borrowers start to re-emerge at the Estate Agents !

All in all a welcome development.

CML reports lower than expected reposessions for 2008

Original predictions of 45,000 reposessions in 2008 were better than expected at 40,000 with Q4 reposessions lower than Q3 !! On a "number of months" basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year however these figures are measured against "current month" mortgage payment. In a lower interest rate environment this can overstate the position and when rates are rising the number may appear lower .... mortgages on fixed rates are not affected by this anomaly.

Figures from the Council of Mortgage Lenders released today show 40,000 people lost their home last year, representing 1 in 290 mortgages and up from 26,200 in 2007.

Around 10,400 properties were taken into possession by first charge mortgage lenders in the fourth quarter of 2008, down from 11,100 in the previous quarter but up from 6,900 in the fourth quarter of 2007.

The total number of first-charge repossessions in the year was an estimated 40,000. This was 5,000 lower than the CML's original forecast for the year.



The fact that there were 11% fewer repossessions than expected, despite a worsening economy and rising unemployment, demonstrates that mortgage lenders are making strenuous efforts to ensure that repossession really is a last resort claims the CML.

It also says it is important to recognise that repossessions include a proportion of abandoned properties and property fraud.

They also include Buy to Let repossessions, as well as home-owner repossessions.

At the end of 2008, around 182,600 mortgages - or 1.57% of the total - had accumulated arrears equivalent to 2.5% or more of the outstanding balance - for example, £2,500 or more on a £100,000 balance (a £97,500 mortgage plus £2,500 arrears).

This compares with 1.29% at the end of the third quarter of 2008, and 1.08% at the end of 2007.



On a "number of months" basis, 219,100 mortgages were in arrears of more than three months at the end of 2008, up from 166,600 at the end of the third quarter of the year, and up from 127,500 at the end of 2007. However these figures are measured against "current month" mortgage payment. In a lower interest rate environment this can overstate the position and when rates are rising the number may appear lower .... mortgages on fixed rates are not affected by this anomaly.

However, the big reduction in mortgage rates experienced in 2008 was a significant influence on the rise in the number of arrears cases measured on a "number of months" basis - as the same given sum of arrears represents a higher number of months payments as interest rates fall.



Michael Coogan, director general of the CML, says:"Despite the upward pressure on mortgage arrears and repossessions arising from the problems in the economy and rising unemployment, both lenders and government are continuing to find more ways to help more people stay in their homes.



"But there seems to be a sharp rise in cases where borrowers are handing back their keys or abandoning their properties. We strongly urge borrowers to contact their lender and work with them before taking this step, as there may be other solutions.

"Borrowers are still liable for their debt, even if they leave the property, so working through their problems is much more likely to be in their best interests."

House prices - are they falling or rising? Both apparently!

A subject close to all of our hearts and we think we understand what is happening to average house prices – until Nationwide announces that prices fell by 1.3% in January and Halifax announces they rose by 1.9% in January. Very confusing when it comes to residential mortgages and Buy to Let mortgages! Further investigation only makes the situation even more confusing as a plethora of other indices appear to tell strikingly different stories:

So which one should you believe? The answer is - it all depends ...

Rightmove is a survey of asking prices and thus should be a leading indicator of prices – but quite clearly as the market started to turn down in early 2008 it took some months for sellers to adjust their expectations downwards to more realistic levels. The upturn in January 2009 is interesting if it represents something more than vendors deluding themselves.

Hometrack index is a survey of Estate Agents estimates of current prices in their locality – and they do not usually publish the full results of their survey. When the full data is examined their average price is the lowest of the above surveys.

Land Registry index is based on prices recorded on sales at the Land Registry and therefore has a “natural” bias in favour of those properties that tend to be traded regularly.

Halifax and Nationwide indices represent the prices used in valuations for mortgages issued by the respective lenders. In theory they should tell similar stories – but differing criteria on mortgage products available at any given time can “skew” the samples to produce very different results as has happened in January. Also the Nationwide index is published during the month (rather than after the end of the month) and consequently is not strictly an index for the month as a whole – although this should obviously balance out over time.

FT HPI uses more sophisticated methodology to pick out the best of the other price data (in particular Land Registry) and should represent a more “reliable” guide to price movements – but I have to admit this analysis is based on a review of indices produced by “Acadametrics” who also produce the FT index!

What can be said with a reasonable degree of confidence is that prices paid have fallen by around 15% from their peak and that many vendors are still holding out for better prices – there is no evidence in the statistics of significant distress selling.



Further information on the different indices is at http://www.acadametrics.co.uk/House%20Price%20Indices%20Fact%20or%20Fiction.pdf

Mervyn King says the recession may be longer and deeper than expected!

So, Mervyn King has announced that we are in a deep recession and that it may be longer and deeper than expected. He has indicated that cuts in rates may no longer be enough to stimulate the economy and that they will need to look at other tools at their disposal.

This in effect means that it is likely that the Bank of England will start to purchase Government bonds and gilts direct from the treasury to increase the supply of money in the economy. Not quite “printing money” but this is the “Quantative Easing” that has been talked about so much recently.

With Mervyn stating that rate cuts are not enough to turn the economy around, there is the question as to whether we will see further Base Rate cuts and whether the current 1% is the lowest rate we will see. My personal opinion is that if the Bank is keen to use all tools at it’s disposal then it might as well carry on bringing rates down below 1%. RBS are now forecasting a further reduction of 0.25% in March and a further 0.25% in April bringing rates to a new low of 0.5% - it is not out of the question that we will see 0% rates this year!

As the Bank grapples with stimulating growth it will hopefully not be too long (mid 2010 is my guess) before we will see rates increase again. The inflation target of 2% will remain and the Bank of England will look to increase Base Rate to keep Inflation under control.

With regard to mortgage rates, the latest Base Rate reduction has had little affect on products but there are deals to be done. For residential mortgages, there are now some great fixed rate mortgages about, an example of which is an attractive 5 year fixed rate of 4.29% with a flat fee of £995. Buy to Let products are still at commercial terms but this is unlikely to change for the foreseeable future and many landlords are now looking at the fixed rates currently available – as an example, at 70% you can lock in for 5 years at 5.54% with a 2.5% lender fee – pretty good in the current climate. As mentioned in previous blogs – I do not envisage Fixed Rates falling further so now would certainly be the time to act.

Will everyone benefit from the 0.5% cut in Base Rate?

Much media focus over the last 5 months has focused not only on how much lenders reduced their SVR but also on the date at which it will be implemented. This is monitored very effectively by the BBC on http://news.bbc.co.uk/1/hi/business/7872344.stm and you can see who passes on what amount and how quickly they do, or don't, apply it. You can also see our own graph below.

Many residential mortgages are on fixed rate mortgages of 2, 3 or 5 year duration. These borrowers will generally be paying mortgages between 4.75% and 6.75% and will be looking carefully at the clause that identifies what price they will pay after the initial fixed rate period. The majority will revert to the lender's standard variable rate (SVR) which is at the lender's discretion and currently varies from 3% to 5.79% (ignoring one lender with an eye watering 8.44%). Several have already stated their intent to pass on the latest rate cut in full (Nationwide, LLoyds, HBOS and Woolwich) but this will still mostly be on a margin greater than Base + 2%. Borrowers should also check that their mortgage doesn't include a "collar" that would impose a minimum interest rate - for example 3%. The most fortunate borrowers are those who have a Bank of England Base Rate (BBR) linked mortgage where the 0.5% cut is applied with immediate effect !

For the very small group of borrowers who have a mortgage headline rate with a discount of 1% or more to BBR , there is the delightful prospect of a negative interest rate. In reality this simply won't happen but there doesn't yet seem to be an industry wide solution to this conundrum. Even when this is agreed, I doubt whether most lenders computer systems will cope !!

Buy To Let borrowers mostly benefit from mortgages that are linked to BBR or LIBOR rate and will have enjoyed ever improving cashflow in recent months. We have not identified any "collar" clauses in the Buy to Let mortgage sector. Some borrowers will be on SVR with a lender and if that lender is no longer actively supplying new mortgages they may not be passing on BBR cuts in full to borrowers - 4.84% SVR doesn't seem expensive until you equate it to BBR + 3.84%. Refinancing these mortgages to other lenders can sometimes also release equity for further purchases if gearing is relatively low.

Business borrowers are invariably funded to BBR or LIBOR rate - sometimes lenders will stipulate that loans above £1M, must be funded to LIBOR to mitigate risk. A few banks will offer "dual pricing on each transaction - BBR + 2.75% or LIBOR + 2% ie the differential between the LIBOR and BBR in the money markets. For these borrowers the issue isn't so much price as the availability of credit !!

The Government will maintain its focus on BBR and cite any lender as irresponsible who doesn't match the BBR reductions regardless of the real funding cost either from wholesale funds or from retail deposits. And of course this portrays them as the consumer's champion which will be important as a general election approaches; but now that they (and us as taxpayers) have significant stakes in both RBOS and Lloyds HBOS and full ownership of Northern Rock and Bradford and Bingley, they need to be mindful of their investment in these institutions when they issue headline grabbing statements.

By clicking on the below you can see a consolidated list of lenders and any benefits they have passed on. We will be updating this as things develop.

Bank Base Rate now seems set for 0.5% cut on Thursday

There is an increasing acceptance that the woes of the economy at large will not be fixed and consumer confidence improved by cuts in Base Rate (BBR) alone. The media are now looking for signs of quantitative easing to improve market liquidity and thereby take the pressure off LIBOR rate that is stubbornly stuck at 2.17% - a premium of 67bps to BBR at 1.5%. Even SWAP rates have started to move up over the past week with 1, 3 and 5 year money at 1.77%, 2.44% and 3.01% respectively. This has tempered the appetite of lenders for reducing their fixed rate offerings ion both the residential mortgage and Buy to Let mortgage sectors.

Indeed even with a 0.5% cut in BBR to 1% there will be several lenders with discounted mortgage offerings completed back in 2007 where the effective pay rate is 0% or, theoretically, -0.01%. Whilst the conundrum of how their systems will cope with this equation is an interesting topic of debate , it does pose very real question marks over the returns to savers where many lenders are currently looking to resource funds for new loans and mortgages.

There is a view gaining support that BBR may reduce to 1% and stay there for a considerable period of time - but this doesn't yet seem to be showing up in SWAP rates. As with LIBOR rate some of these current pricing issues may be down to the reluctance of banks to trade when they still have concerns that some banks may yet face nationalisation.

The net result is that there are some good fixed rates out there which may not improve significantly unless and until such time that the markets find some equilibrium and medium term confidence.

 

MFB appointed by B&B as Mortgage Express ERC referral broker

At Mortgages For Business we are delighted to have been appointed as one of two firms to assist Mortgage Express borrowers looking to take adavantage of the Early Repayment Charge waiver if borrowers redeem their loan in part or full between 1 February and 30 June 2009.

Some borrowers may find that their original broker or financial adviser is no longer active in the mortgage market and will be looking for guidance on how they can make best use of the waiver opportunity. Callers to Mortgage Express Call Centres asking for advice on other mortgages will be referred either to MFB or another firm.

We have a specialist sourcing system that allows us to quote on 120 Buy to Let mortgage products and we have already been able to quote and arrange new mortgages to redeem Mortgage Express. We can also look at other properties to release additional funds to maximise on the opportunity....

BBG Call Centres are understandably experiencing record volumes of telephone calls so if you need to confirm any details of the Mortgage Express Early Repayment Charge amnesty please don't hesitate to call us on 0845 3456788 - as their Referral Partner we know how the full scheme works.

 

Bank Base Rate set to fall to 1% on 5th February 2009?

The next MPC meeting on 4 February with its announcement on 5 February is heading towards a 0.5% cut in BBR down to 1%.

The prevailing view is that 1% will be the last of the cuts in BBR and thereafter the Government and BoE will adopt other tactics including quantitative easing although Danny Blanchflower who sits on the MPC still believes that rates could yet go as low as 0.25% or 0.5%. His view isn't shared by the SWAP markets where 1 year SWAP rate has gone up slightly to 1.71% and 3 year SWAP is at 2.50% (27 Jan 2009).

The premium between BBR and LIBOR rate is only reducing slowly and stands at 68bps ie 2.18%. Whilst there are good technical reasons restricting downward movement, the margin this close to the next announcement is indicative of a 0.5% reduction.

It's all about cash flow!

These are tough times and as the recession takes hold many of us are now looking at ways of tightening our belts further. At this time of year, we are all looking at our expenditure for the coming year and deciding whether we can afford the family holiday, next term’s school fees, credit card payments, utility bills…. I could go on.

Those borrowers with Base Rate Buy to Let tracker mortgages have seen mortgage payments come down over the coming months but those locked in to relatively high fixed rate Buy to Let mortgages are now looking at ways to refinance to improve the monthly cashflow.

With residential mortgage rates now available below 4% and Buy to Let rates below 5%, now could well be the right time to pay a penalty on your existing mortgage deal, lock into a lower rate and reduce your monthly mortgage commitment. Paying a penalty and refinancing may not be right for everyone so please ensure that you get proper advice from your mortgage adviser.

If you are lucky enough to have a mortgage with the Bradford & Bingley Group (Mortgage Express, Keystone, and some GMAC/Kensington borrowers) you may well be aware that Bradford & Bingley will waive all repayment penalties if you refinance away from then before end of June 2009.

Our consultants are on hand to review your options and whether your mortgage is with Bradford & Bingley or not, it makes sense to review your mortgage arrangements today. You never know, you may be able to afford that holiday after all!

Will Base Rate stay below 5% in 2009?

2009 is shaping up to be an interesting year, but hopefully not for the same reasons as 2008. The actions by the Bank of England and other Central banks has been to attempt to stabilise the global markets and right some of the wrongs in recent years.

How long this will last will depend on the length of the recession we are about to enter statistically. Most analysts tend to look forward 12 months for potential rate movements, as looking beyond this period becomes more difficult to project as there are too many variables.

At this stage the predictions are for a BBR of 1% within 3 months and 0.5% within 6 months. BBR is then expected to be held at this low rate until this time next year. By early 2010, it is hoped that the economy will begin to improve and business stimulated. With this improvement, demand for money will increase, and therefore BBR will again rise to keep the economy and inflation under control.

As to when BBR is likely to be at or above 5% is not in current forecasts, but the suggestion by those in the know are for BBR around 3 to 3.5% in the next 24 to 36 months. The Swap rates set on 20 January 2009 has 5 year money at 3.01%, suggesting longer term rates should stabilise. This is providing the economy doesn't over react and inflationary pressure force the banks to increase BBR more quickly as a control measure.

This will natrually effect buy to let mortgages and residential mortgages but it simply depends on which way the rates go!

Mortgage Express waive ALL Early Redemption Charges!

Effectively this is an amnesty to allow Mortgage Express borrowers (both residential and Buy To Let) to re-finanace away at no exit cost. Letters will be sent to all their customers in the coming days but this offer would be a great opportunity for those in fixed rates to look at new lower fixed rates which are becoming available after recent Base Rate cuts.

We are expecting some new products in the next day or so at low levels but we expect lenders to experience an upswing in applications as Mortgage Express customers hunt for new finance.

The amnesty will also include some mortgage customers of GMAC, Kensington and Keystone whose loans are also part of Bradford and Bingley Group. If you are unsure of your position please give us a call.

Call our Mortgages for Business team NOW to discover how you can take advantage of this amnesty on 0845 3456788

SWAP rates and LIBOR rates on the move in 2009

The entry into the New Year was no doubt followed by many with a New Year's resolution on how to improve their lot in life and a glass or two, to bid fairwell to a truly awful 2008.  Of course, there would be those that would ask, was the glass half full or half empty?

Irrespective of your view of life, the first few steps into the New Year may have been bright and sunny for many people, but like the weather it has been bitterly cold, just like the economic data and outlook.  Sadly, 2009 hasn't introduced a clean slate and rid us of the "credit crunch" nor heralded a change of heart by lenders, yet...

Early economic results have been poor and sadly two further lenders, Bank of Ireland and Bristol & West have decided to close their doors to broker introduced business. Despite the news reports of those who prefer to see life as "half empty" and "we're all doomed", there are some positive aspects that need to be highlighted.

Much has been made by lenders of the Swap markets and cost of LIBOR funds to finance their loans. During much of 2008, the spread of Swap rates for 1, 2, 3, 5, 7 and 10 year funds was held in a tight range, with approximately 0.6% difference between the cheapest and most expensive.  However, due to the volatility in the markets, 10 year swaps were actually cheaper than 1 year Swaps.  The high cost of these rates reached a peak in late September 2008, at which time the 1 year Swap topped 5.81%, whilst 10 year rates reached a maximum of 5.26%.

The decision by the MPC at the Bank of England and other major Central Banks to instigate a unified reduction in Bank of England Base Rate (BBR), has helped in restoring some normality to the cost of these funds. When BBR began to fall in October 2008, Swap rates also began to settle into an expected order, with 1 year Swaps cheapest to buy and 10 year costs returning to be the most expensive. 

Although slow at first, the cost of each of the Swap rates has continued generally downwards, although this has been coupled with a widening in the gap. Whilst the gap in costs in late September 2008 was 0.6%, as at 9 January 2009, 1 year Swaps stood at 1.77%, and 10 year Swaps stood at 3.49%, a difference of 1.72%. Not all lenders have yet embraced these lower costs, some preferring to introduce collars into their products or widen their margins.  However, that is another argument.

The past year has also seen significant changes in the cost of LIBOR rates. It is hard to believe that on 23 January 2008, BBR was 5.50% and on the same day the LIBOR rate was 5.48%, remarkably 0.02% below BBR.  Needless to say this pleasent situation didn't remain long, with BBR and LIBOR slowly diverging throughout 2008. Between late January 08 and June 08, the gap in the two rates increased, with LIBOR 0.96% over BBR by June 2008 and still remained at 0.7% above BBR in September.  It was at this point that the wheels were perceived to have fallen off and banks became very reluctant to part with their money. This resulted in a wholesale removal of products, citing cost of LIBOR as the reason.

Following the first BBR reduction in October 08, LIBOR had increased to 1.77% above BBR.  It took a full month to recoup the increase, and still remained 1.18% above BBR by the time we reached November's MPC decision.  Following this historic reduction in BBR by 1.5%, LIBOR had increased to 2.56% over BBR.

So where is the good news, lenders haven't reduced rates in some instances. Well, part of this may be due to the lender having fixed its rates for three months and has not yet reached the review date.  Alternatively, it may simply be due to them wishing to price themselves out of the market for the time being.

   

However, like the Swap rates over the past few months, LIBOR has also continued to fall at a reasonable pace.  Despite jumps on the BBR reductions in December08 and January 09, the banks have supported the call for more assistance and LIBOR has made a good recovery, and is expected to be 2.33% (when confirmed on 13 January) only 0.83% above BBR.

Although it is too early to predict if there will be a further reduction in BBR in February 09, the longer term financial forecasts are predicting a fall in BBR to 1% within 3 months and to 0.5% within 6 months, this rate being held until this time next year.  If this becomes reality, then there is potential for significantly reduced funding costs, which would hopefully bring lower borrowing costs later in the year.

If you wish to adopt a New Year resolution, the glass is half full and remain positive. With this overall reduction in the cost of funding, some reasonable short term Buy to Let fixed rates and residential fixed rate mortgages can't be too far away.  If the cost of 5 and 10 year funds reduces further, there could be a strong argument to take advantage of a longer term fix, where appropriate.   

We just need the lenders to start lending properly again and we are there!

Bank of England Base Rate cut by 0.5%. How will this effect Buy to Let?

Good Afternoon and a belated Happy New Year!

So, the Bank of England has announced a further 0.5% cut in the Base Rate. Rates are now at their lowest for 300years and could still go lower.

Liquidity in the Banking sector remains an issue but despite what you may hear, lenders are lending and we are seeing an increase in the number of Buy to Let mortgage products available. As a guide, before the last Base Rate cut, our internal sourcing system Mortgage Flow was showing c80 products available. Today there are in excess of 120 products and we would expect a raft a new products shortly as lenders take into account the latest reduction in the cost of borrowing.

As an example, one lender this week has already launched a couple of 1 year products. A 1 year fixed at 3.49% and a 1 year tracker at Base + 1.99% - both with a fee of 3.5% added to the loan. Expect further buy to let fixed rates to be available over the coming weeks and please keep an eye on our website which keeps all product information up to date and in real time. (All rates were updated within 5 minutes of today’s Base Rate reduction!).

Our website will also keep you updated on the movement of 3m LIBOR rate which has steadily reduced in anticipation of today’s Base Rate cut. The good news is that the gap between Base and 3m LIBOR continues to narrow with the spread only 50bps before today’s announcement (compared to a gap of 118bps in Nov and 79bps before December’s cut). The reduction in LIBOR along with the implementation of the various Government initiatives will improve confidence and liquidity amongst the lenders which in turn will lead to an increase in available mortgage options.

We will continue to keep you updated. In a complex market it has never been more important to get the right advice about your mortgage options – our Consultants are on hand to assist you and keep an eye out for further Buy to Let Blogs and e-mails over the coming days and weeks.