A month ago, I couldn’t have envisaged writing this article with so much change having occurred over the intervening period. The start of March feels like a very different world, and a very different mortgage market environment, in which we were all living, and the consequences of the change that has happened feel profound, and potentially long-lasting.
Back then, there was no war in Iran, no wider conflict in the Middle East, no soaring oil price, no impact on UK inflation or swap rates, or potentially for Bank Base Rate to rise, but we have clearly moved a long way from that level of stability and certainty.
It is perhaps a chastening lesson - and one that we have repeatedly had to learn in recent years - that things can change very quickly, very dramatically, and the impact can be volatile, extreme and far-reaching. Following on from the pandemic, the war in Ukraine, the ‘Mini Budget’, we now have these market-moving events and they perhaps teach us that we increasingly need to expect the unexpected.
Normally, I spend the second half of this regular monthly article pouring over the latest high LTV product data, but it feels right to bring this forward in this piece, because by doing so, I’ll be able to show the changes that first-time buyers are dealing with in the mortgage market, let alone all other borrowers, and the brokers and lenders that serve them.
A month ago, while looking at the availability of high LTV mortgages for first-time buyers based on the average Nationwide monthly house price figure, we had just seen a monthly increase, up from 263 to 271. Indeed, 95% LTV mortgages had been creeping up in number for some months.
Unsurprising, given what we have seen over the past few weeks in terms of both product pulls and rate changes, at the start of April that picture is very different. This month the average Nationwide house price is up to £277,186, a healthy monthly increase of 0.9%, and a yearly one of 2.2%. Whether that will continue through the rest of the year certainly doesn’t feel assured at the moment though.
Moving on to product choice, for first-time buyers with a 5% deposit level of £13,859, we now have mortgage market product availability of 200 - a drop of 71 over the course of the month - split between 180 fixes (previously 252) and 20 trackers/discounts/variables, which are actually up in number from 19 last month.
Pricing, as you might have anticipated, has seen a sizeable shift particularly when it comes to fixed rates. For example, where last month you could have secured a two-year fix with Lloyds at 4.5%, now we have Barclays at 5.3%, the Teachers Building Society with a 5.49% deal, and West Bromwich BS with a 5.5% rate.
In the five-year fixed rate space, the difference is just as sharp. Last month, the top three rates were 4.54%, 4.61%, and 4.66%. Now, topping the best buy tables are Barclays with its 5.31% product, First Direct at 5.49% and Teachers Building Society again at 5.49%.
It will be interesting in the months ahead to see whether the popularity of discounts and trackers rise, especially if Bank Base Rate stays the same. Currently those with a 5% deposit can secure a 4.74% two-year discount from Furness Building Society, the same rate for Bath Building Society, a 4.84% deal from Scottish Building Society, or a two-year tracker from Nationwide at 4.89%.
All are 50 basis points, or just below, cheaper than fixes and perhaps tempting for those borrowers who think the suggestion BBR will now rise is overdone.
There has been little change in the 100% LTV mortgage space, in terms of product numbers, with the market having lost one product – down from 10 to nine – across six lenders. Bath Building Society is still offering its two-year discount product at 4.94%, while Beverley still offers a 4.99% three-year discount, and Lloyds has a 5.14% three-year fix but for current account only customers. If you want a five-year fix at 100% LTV, the cheapest on offer is 5.8% from Skipton Building Society.
It is a slight ‘back to the future’ feel for first-time buyers who will clearly be fishing in a much higher fixed rate pond now. Fixed rate pricing is well up on what it was a month ago with the anticipation that, even with a resolution of any sort in the Middle East, lenders are still likely to take their time in pricing downwards because no-one can be quite certain about what is going to happen.
That will clearly mean a different affordability hurdle for first-timers to get over with the higher rates, however there could be options available in the tracker/discount space which might well be worth exploring, if the feeling is that future BBR rises are not as baked in as some would believe.
What ever happens, my belief is the rest of this year has now been fundamentally reshaped by what has happened in recent weeks. The fact we still have 200 high LTV products and nine 100% LTV products is still a positive, even if rates are far above what was achievable in the first two months of the year.
We should encourage lenders to maintain their presence in this space as it will mean a great deal for those still seeking to get on the ladder. However, predicting what may befall the market over the next month, or further, ahead is a risky business and I suspect all lenders will be erring on the side of caution for some time to come.
