Lenders dive into why they have lowered some of their offerings
In recent weeks, several lenders have started reducing rates, with stability seemingly slowly returning to the market.
Keystone Property Finance lowered rates by 0.65%, and Landbay cut rates by 0.70%, as well as reintroducing fixed rate products for trading companies and first-time landlords of small HMO or MUFB.
Mortgage Introducer reached out to discover why lenders are choosing now to reduce rates, whether confidence is returning and their longer-term expectations for the mortgage market.
Why lenders are cutting rates
The reduction in rates, Rob Stanton (pictured), business development director at Landbay, said, is a direct response to improvements in SWAP rates, which have decreased in recent times following a period of sustained volatility.
“This has been driven by the positive news that inflation has fallen from 8.7% to 7.9%, bringing it in line with the target set by the Bank of England back in May,” he said.
While the markets had forecast that inflation would ease, Stanton said this news surpassed lenders’ expectations, helping to instil some confidence.
David Whittaker, chief executive at Keystone Property Finance, agreed with Stanton, and said the news from the Office for National Statistics (ONS) that inflation had fallen more than expected in June had a positive impact on SWAP rates and this enabled the firm, like many other lenders, to react.
Shifting confidence
Whittaker said base rate movements hinge on inflation and, with price rises slowing, there is a sense of optimism that rates may be approaching their peak.
“However, given how sticky inflation has been over the past 18 months, we should not get carried away,” he said.
While confidence in the market will continue to grow, Whittaker said, there may still be bumps in the road ahead. When there is volatility in the SWAP markets and in the wider mortgage market, Stanton said, it is typically fixed-rate products that face the most pressure.
Therefore, waiting for a shift in stability, Stanton said, was the key to the reintroduction of products as well as the lowering of rates.
Long-term expectations for the mortgage market
The volatility we have seen in recent months, Stanton said, shows that it is never easy to predict the mortgage market.
“News of inflation easing has had a positive impact, especially on SWAP rates, but core inflation remains stubborn and still clearly a concern for the Bank of England,” he said.
Until the easing of inflation becomes more of a trend, Stanton believes the Monetary Policy Committee (MPC) is likely to continue its rate rising agenda.
If inflation does continue to improve though, he believes the market can expect rates to peak much sooner than expected.
“Lenders will continue to have one eye on potential rate reductions, all the while remaining cautious of any banana peels or market surprises that may present themselves in the future,” Stanton added.
With predictions that rates will stabilise at around 6% over the coming year, he believes affordability will remain a clear challenge, especially for those remortgaging.
“This will push lenders to stay competitive and to innovate to help brokers meet a broad range of requirements, such as our variable fee structure, for example,” Stanton said.
Focusing on the buy-to-let market, Whittaker said there is no denying it has been in a state of flux recently, and that there had been challenges for lenders, intermediaries, and their clients.
“As well as the ongoing issue of inflation, and its effect on product pricing, we have seen the impact of the Renters Reform Bill, as well as increased expectations around Energy Performance Certificates (EPC), and that has undoubtedly created headwinds for some landlords,” he said.
However, tales of the demise of the buy-to-let market or a landlord exodus, Whittaker said, are exaggerated.
“Our own data shows that nearly 40% of buy-to-let landlords are still identifying buying opportunities,” he said.
In fact, Whittaker added that the number of purchase applications Keystone has received so far this year is above the long-term average, which is something he expects to see continue.
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