Glory Days of Rock Bottom Mortgage Rates Could be Coming to a Close

The Mortgage Trends Update for March 2018 from UK Finance has revealed an increase in lending to first-time buyers compared to the previous year, whereas remortgaging levels have softened slightly after a busy start to the year.

In a different report, figures from the Bank of England show similar results. Gross mortgage lending in Q1 of 2018 was £61.1bn, up 3.4% from £59bn in Q1 of 2017.

Private finance comments on the report; “March is usually a time when the market springs into action, however the latest figures from UK Finance paint a subdued picture across all areas of the market.

“After a recent rally of remortgage activity, it looked like March was the month this market finally ran out of steam. The recent decision by the Bank of England to hold interest rates at 0.5% however shouldn’t be met with complacency by homeowners.

“The glory days of rock bottom interest rates are coming to a close, with a rate rise a near certainty as soon as the UK economy starts to pick up. Homeowners yet to lock into the favourable deals on the market are therefore playing a risky game of ‘rate rise roulette’. Locking into a long term fixed rate can buy borrowers some immunity for almost a decade from climbing interest rates.

“For first-time-buyers, the market has flattened, with a modest increase of 2% year on year. While the market may be more subdued, competition to attract first-time-buyers remains fierce amongst lenders. Those in a position to make their first step onto the housing ladder therefore shouldn’t be discouraged or dissuaded by these figures.

“The buy-to-let market suffered another disappointing month, while lenders are trying to tempt would-be investors back into the market with competitive mortgage rates, it would seem the punitive tax measures have had their desired effect in curbing activity in this area of the market. With lending down by 20% year on year, potential landlords are saying goodbye to their buy-to-let ambitions.”

UK Finance has revealed a small increase in lending to first-time buyers compared to the previous year, whereas remortgaging has softened slightly after a busy start to the year.

Key highlights of the report included:

• £5.1bn of new lending to first time buyers in the month, which was up 2% on the previous year
• 31,200 new first-time buyer mortgages were completed in the month, 1.9% fewer than the previous year
• £6.1bn of new lending to people moving homes in the month, which was 4.7% down from the previous year
• The £5.6bn lent to people remortgaging their homes this year is a figure down by 9.7% from the previous year

Commenting on the data, Jackie Bennett, Director of Mortgages at UK Finance, said: “Remortgaging levels softened in March, after a busier than usual start to the year saw customers locking into attractive deals ahead of a potential interest rate rise.

“There has been relatively flat growth in lending to first-time buyers, reflecting recent Bank of England figures showing a fall in mortgage approvals.

“Meanwhile the buy-to-let market remains subdued, as recent tax and regulatory changes continue to have an impact on demand.”

Key findings in the buy-to-let sector:

• 12,600 new buy-to-let remortgages were completed in the month, up 0.8% on the same month last year
• 5,500 new buy-to-let home purchase mortgages completed in the month, which was significantly lower than the previous year (19% less). UK Finance suggests this is due to recent tax and regulatory changes, including the limiting of landlords’ Mortgage Interest Tax Relief (MITR), the three per cent Stamp Duty Land Tax (SDLT).

John Eastgate, Sales and Marketing Director at OneSavings Bank says: “Buy-to-let lending has demonstrated some resilience despite the tax and regulatory interventions introduced in recent years. The purchase market was always most likely to bear the brunt of these changes, and today’s figures endorse that.

“Caution needs to be exercised by policymakers who can ill afford to further undermine a market that provides more than a fifth of all housing stock in the UK, and which contributes in excess of £15bn to the UK economy every year.

“Despite these figures, it remains the case that buy to let is now a two-speed market, with amateurs exiting and professionals picking up the slack. Buy-to-let is still a profitable investment, with our own research suggesting landlords could see a net profit of £162,000 per property over the next 25 years.”