Yet again we find ourselves in extraordinary times. If Brexit wasn’t enough, or a global pandemic, how about an unprovoked military invasion by a mad, authoritarian leader with a veiled threat of World War 3?
It seems to have been wall-to-wall news coverage of one big issue after another for the past five years and sometimes everything just seems too much.
It does put our own day-to-day issues into perspective, knowing that decent, everyday folk are suddenly hunkering down in shelters, worried about getting through the night. We stand in solidarity with the Ukrainian people.
The money markets have been injected with helium
With that in mind, we do have to turn our attention to our economy and industry, and wonder what the immediate effects of all of this will be.
We already have high inflation driven by price rises in energy, food and materials. The fact that Mr Putin is trying to get the band back together means the resulting spikes in the price of oil, among other things, will not help either.
The pressure for more rate rises from the Bank of England over the coming months is set to intensify even further and most commentators now expect rates at between 1% and 1.5% by the end of the year at least.
What will the immediate effects of all of this be?
As for Boris, well, he seems a lot safer than he was. Not many people are still talking about parties, and he is suddenly trying to play the part of a wartime leader rather than a bumbling fool.
What we do know is that the economy and indeed all of us are going to be tested yet again over the coming weeks, but we can focus only on what we can control. Our clients need the good advice we continue to deliver, whatever the situation.
Resilience in property market
There have been a few reports out recently that have shown the resilience of the property market, with Nationwide saying house values jumped 12.6% year on year in February, pushed by extremely low supply and a seemingly insatiable level of demand.
We have just seen the Bank of England’s Money and Credit report (January), which showed that the mortgage market had shrugged off the usual seasonal slowdown, with approvals for house purchases the highest since July 2021. However, consumers’ borrowing power is likely to wane as lenders take into account the extra costs associated with the current environment.
The economy and indeed all of us are going to be tested yet again over the coming weeks
As we have seen from the endless emails about rate rises, the money markets have been injected with helium. Three-month Sonia is up 0.34% at 0.53%, and swap rates continue to balloon.
Since the last column:
- 2-year money is up 0.19% at 1.48%
- 3-year money is up 0.14% at 1.49%
- 5-year money is up 0.10% at 1.40%
- 10-year money is up 0.07% at 1.27%
It was not long ago that we were talking about the best five-year fixes being below 1%, and now we are seeing the best five-year fixes 0.75% higher — which shows how far and how quickly things have changed in the market.
In the past week at the time of writing, the average price of all fixed-rate mortgages rose, according to Money Facts, powered by major hikes at almost every loan-to-value category, with two-year fixes on average rising nine basis points, while five-year fixes on average rose six basis points.
Consumers’ borrowing power is likely to wane as lenders take into account the extra costs associated with the current environment
For most buyers this is still affordable in terms of monthly payments, but borrowers need to get over the psychological barrier that these rates are now ‘very expensive’. They are not, but they certainly feel that way after the low rates of the past few months.
Affordability caps
One thing that may help is the fact that the proposal to potentially remove the current affordability caps is being consulted upon. Whether the limit on loans above 4.5 times income or the stress test is removed remains to be seen. And there is some debate that, given the house-price rises of the past 12 months, we don’t need anything else to stimulate demand and people have done pretty well with it.
However, as things get tighter it may well be time for an orderly and careful change, especially in the stress test.
In a bid to stop spiralling house prices, second-home owners in Wales are set for a massive potential 300% increase in council tax, for second homes or long-term empty properties. The aim is to help local people find more affordable homes and it is very hard not to agree with such a policy.
Rates are now seen as ‘very expensive’. They are not
Also interesting is a report from The Mortgage Lender that suggests around 14% of all UK adults plan to buy a home this year, but 34% could experience mortgage application problems from poor credit histories, or from issues brought about by the pandemic.
Stats like these show it is vital that prospective borrowers get professional advice before they go out shopping for a home, to avoid disappointment.
There have been a few positive policy changes by lenders — including Atom Bank increasing its maximum loan-to-income ratio to 5.5 times for those earning more than £60,000 per annum; and Nationwide, which will now allow 5.5 times income up to 95% LTV for those using its Helping Hand offering.
Given the house-price rises of the past 12 months, do we need anything else to stimulate demand?
Well done also to Paragon for recognising the work brokers do on product switches and increasing proc fees to 0.4%; and for extending the time from three to six months before maturity that a switch can take place.
Finally, it was good to see the Financial Conduct Authority introduce restrictions on the fees that claims management companies can charge customers. This will prevent some of the ridiculous figures people were being charged, and it is more than about time.
Hero to Zero
The people of Ukraine – the real heroes
Nationwide – for its Helping Hand offering
Paragon Bank – for increasing proc fees on product switches
Fake FCA emails in circulation – please check the emails are from proper FCA addresses
The few rogue estate agents who are not playing by the rules, to the detriment of consumers
Mr Putin – get a grip, lad!
What Really Grinds My Gears?
The long-discussed debate over estate agents and relationships with in-house brokers has reached fever pitch in recent days, with a number of allegations being made public in the press about agents refusing to put offers up the line from buyers unless they use their broker.
We all know that this is wrong, and every offer should be put before the vendor, but many of us have seen examples where that has not happened.
I do not believe this is a deliberate policy from the top
It should be remembered that the agent acts for the vendor, not the buyer, so they have a responsibility to make sure they have done their best to present to their vendor those who are in a position to proceed. I am not against agents being financially qualified as long as the broker is up front about what they are doing and who they are doing it for.
If I am buying something, I expect to be asked to prove how I am going to pay for it, and some agents have been burned with promises that were not quite as they seemed.
I also do not believe this is a deliberate policy from the top. But, as in any sales job, the problem is that in a world of targets and pressure a minority bend the truth to get a sale. But proving it is hard and clients are too worried to complain because they want their new home.
The agent acts for the vendor, not the buyer
We need to be clear and provide evidence when it happens. Perhaps the best approach is one I heard from a broker who calmly walked into the branch with their client to discuss the situation in person. The buyer must have a free choice without fear.
Andrew Montlake is a director at Coreco
