"The shift change over the last few months in particular is very noticeable and will be impacting on 5% deposit first-time buyers who will be looking at an ever-changing marketplace"
With the mortgage market still trying to come to terms with rate levels, expectations of where rates go next, and how the money markets are also viewing this, it is perhaps unsurprising to see the tangible impact this is having on product options and average rates, particularly in the high LTV space.
This period still feels a little like the eye of the storm; indeed, I think it would be a brave person who might confidently predict where we will be in a few months’ time, let alone the end of the year, and into next.
As always, I take a monthly look at the provision of mortgage product choice for those first-time buyer borrowers with a 5% deposit, using this month’s average house price from the Nationwide, which in June stands at £262,239 – interestingly, a 0.1% increase on May’s figures.
Product numbers, I’m afraid, continue to suffer, and we appear to be a long way from May’s total 95% LTV product choice of over 150. As of today, that figure is 114 products, split between 95 fixed-rates and 19 trackers/discounts/variables.
And, given the rise in Bank Base Rate and the movement in swaps, it’s no surprise to see that even our ‘Best Buys’ have moved up the rate curve. Vernon Building Society have the best-priced discount/variable product, with its 4.9% lifetime discount which has gone up from 4.65% last month.
And while the Monmouthshire has a two-year fix at 4.9% and a five-year fix at 5%, these products are only available in Wales. Last month you could secure a 4.85% five-year fix, but apart from the Monmouthshire product, the best rate is now Skipton’s 5.44%, while the best other two-year fix is Hanley Economic’s 5.64%.
The shift change over the last few months in particular is very noticeable and will be impacting on 5% deposit first-time buyers who will be looking at an ever-changing marketplace – one which appears to be going in the wrong direction for them, certainly rate-wise. Which begs the question, where next?
In terms of the MPC, we now have – what might be described – as a month’s respite given that the next meeting will not take place until the 3rd August. However, even with that month’s grace, what are we actually expecting from the Committee in terms of how it continues to review rate levels?
Certainly, all eyes will be on the next set of inflation figures, due to be published on the 19th July, and if they have followed recent trends – particularly core inflation – then the expectation must be that the MPC will feel it needs to act again in terms of raising rates.
The alternative of course is that, after a 0.5% increase last time taking BBR up to 5%, the Bank might feel it needs to see how such an increase impacts on inflation. After all, this is the first 50 basis points rise (bps) during the course of these latest series of rates, which up until now have all been 25 bps.
Again, inflation will lead us all down a specific path here, and there are a number of economists who anticipate BBR at 6% or above by the end of the year.
We must also focus on the ‘R’ word here – ‘Recession’. There has been a lot of talk about the Bank and the Government being comfortable with monetary policy initiating a recession in the last quarter of this year and the first couple of quarters in 2024, in order to bring inflation down.
It will essentially be prioritising inflation over growth, and it will be interesting to see what the consequences of that are, particularly for employment levels, but specifically for the housing market, which is likely to be impacted significant by a recession.
Reading those last few paragraphs, it seems utterly bizarre, and somewhat barmy, that we have come to this point, but political idiocy and, you might say, MPC inactivity over a long period of time, means we are currently where we are.
That being the case, and if rates do continue to rise – swaps continue to move up we might add – then it’s likely that affordability becomes an even bigger obstacle to overcome, particularly for first-time buyers with small deposits
Perhaps the saving grace here is that as we enter the last four months of the year, lenders may feel they have to move rates in a positive direction in order to bring in business, which is unlikely to be hitting target for the year as a whole.
Lender competition could mean we have a greater number of product options to choose from for high LTV borrowers, towards the end of 2023, but one wonders what the rates on those products will be, given the ongoing direction of travel we are all witnessing.
