Tag Archives: London broker

Mortgage lending hits £20.5 billion in September

 

According to the latest Council of Mortgage Lender’s (CML) market commentary, gross mortgage lending reached £20.5 billion in September, which is an increase of 2% in comparison to the same month last year.

Report highlights also included:

  • Lending figures bolstered by re-mortgage activity
  • Economic recovery
  • Interest rates may not be cut again soon

THE ECONOMY

The industry is waiting for hard data detailing the impact of the referendum and how the UK economy, in particular, gross domestic product, is fairing. The National Institute of Economic and Social Research’s estimate, which is due out soon, includes these figures and we’re eager to see if their estimate of 0.4% will be accurate and will signal an economic recovery.

As a depreciated sterling value has pushed up import prices, inflation has risen to 1% and will most likely hit the Bank of England’s 2% target by the end of 2017.

The CML reported that: ” It is not clear whether the Bank will move to cut rates as it comes down to whether the medium term outlook in November is judged to be broadly consistent with the August Inflation Report projections. While short-term indicators looks more positive, the Bank will be looking further down the line to make its decision.”

HOUSING MARKETS

The Royal Institution of Chartered Surveyors survey has recently reported an increase in new buyer enquiries for the first time since February this year. However, there continues to be a lack of properties for sale. The housing white paper (outlining housing plans until 2020) is due by the end of this year and will hopefully address this pressing issue.

House purchase approvals fell to a 21 month low, with just over 60,000 approvals in August, however, this is still more positive than the predicted 56,000.

Buy-to-let mortgage lenders have been tightening affordability criteria in anticipation of the forthcoming interest tax relief changes in April 2017 and the Prudential Regulation Authority’s stress tests, which come into effect in January 2017.

Henry Knight, Managing Director, Springtide Capital commented: “Gross mortgage lending is mainly bolstered by re-mortgage activity at present, most likely driven by extremely competitive mortgage rates. However, as advisers, we’d like to see house purchases moving in the right direction too, which means increasing the supply of affordable properties.

“We anticipate that buy-to-let landlords will take advantage of current regulation prior to changes in criteria in 2017, which may distort lending figures a little in coming months.”

Buy-to-let mortgage applications are changing

 

The mortgage industry is set to see another regulatory change in the new year, with a recent announcement detailing new rules that mortgage lenders will be required to adhere to when considering a buy-to-let application.

In view of the announcement, we’ve provided a summary of the changes, the exceptions and an opportunity for landlords to call on Springtide Capital’s expertise to take advantage of the current regulations.

THE REGULATORY ANNOUNCEMENT

The Prudential Regulatory Authority (PRA) has recently announced regulatory changes to the way that lenders assess buy-to-Let mortgage applications. These changes will be implemented by lenders before January 2017 and may affect your ability to obtain a buy-to-let mortgage, the amount that you can borrow and the information you will need to supply.

THE CHANGES

All buy-to-let lenders require that the rental income of a property covers the mortgage payment plus a margin to cover other costs. Calculated as a percentage, this is called the Interest Coverage Rate (ICR) and is the main focus of these latest changes:

  • Going forward, lenders will require a minimum ICR of 125% and will base their ‘stress test’ calculations on an interest rate of at least 5.5%, regardless of how low the interest rate you have secured actually is.
  • Additional costs such as agency fees and council tax etc. will be included in the ICR calculations, as well as changes to income tax liability due to the reductions in interest relief between 2017 to 2020.
  • There is an exception on 5yr+ fixed rate products as these can be stress tested at 125% of pay rate and the ICR can also be topped up using a personal income affordability test.

In addition to changes to the way that the ICR is used, lenders may subject landlords with four or more properties to a ‘specialist and proportionate’ underwriting approach.

THE EXCEPTIONS

Some individual circumstances fall outside of the new regulations, including:

  1. Remortgages of buy-to-lets with no additional borrowing (apart from any added lender or admin fees).
  2. Those with an income in excess of £300k income and/or £3,000,000 in net assets.

THE EXPERT VIEW

Henry Knight, Managing Director, Springtide Capital, commented:“We have seen in the past that when these kind of regulations are recommended, the majority of lenders will exceed the minimum requirements to ensure they are not seen to be too close to the “minimum” allowed.  We have already seen a number of lenders move their ICR to 145% with a 5.5% interest rate stress test and we envisage that a number of those still at 125% are likely to increase further.” 

ACT NOW TO TAKE ADVANTAGE OF THE CURRENT REGULATIONS

It is difficult to know exactly where the lenders will end up, however there is a window of opportunity to act now to review your portfolio growth strategy and ensure you can benefit from a more relaxed stance before the new rules have to be implemented. Our experienced advisers are available to discuss the above changes in more detail with you and provide advice to suit your individual circumstances.

To speak to one of our Mortgage Consultants today, call us on 020 3040 4400 or email info@springtidecapital.com

Marginal drop in post-referendum house purchase activity

According to the Council of Mortgage Lenders’ (CML) latest market summary, there has been a marginal decrease in house purchase activity following the EU referendum in June this year.

CML has estimated that gross mortgage lending was £21.4 billion in July, only a small decrease on June’s figures, but the first year-on-year drop for more than a year.

A year-on-year drop hasn’t gone unnoticed, as the Bank of England (BOE) has announced a “significant monetary stimulus, aimed at supporting the domestic economy during a protracted period of uncertainty and structural change.”

Economic snapshot

CML’s market summary reported that “the post-referendum economic landscape is not much clearer than a month ago. Some indicators are more backwards-looking or inherently volatile than others, and this makes it harder to gauge where things currently stand.”

On the other hand, the UK has a record proportion of working age people in work, the unemployment rate is down to 4.9% and retail sales rebounded strongly in July.

Henry Knight, Managing Director, Springtide Capital commented: “Although a decrease may sound negative, the UK economy actually seems to be fairing well following the referendum. We still have a long and unknown road ahead, however, we can take some reassurance in the fact that the Monetary Policy Committee (MPC) has a package to support financial pressures.”

The MPC package

According to CML, “the MPC unveiled a significant package of monetary measures in early August. Reflecting the transmission delays before the monetary policy takes effect, the Bank’s timing is designed to provide meaningful stimulus to our domestic economy as growth sags going into next year.

“As well as the widely anticipated 25 basis point reduction in Bank Rate to 0.25%, the Bank of England also announced a fresh round of quantitative easing – with £60 billion of gilt purchases and up to £10 billion of UK corporate bond purchases – and a new £100 billion Term Funding Scheme (TFS).”

How will this help?

Firstly, the base rate will no doubt help borrowing rates to remain low, which helps affordability for households and firms.

Secondly, lenders will have access to £100 billion over the next year at beneficial rates for four years – supporting the financial pressures that they will face. As a bonus, new lending may also be eligible for a matched amount of additional funding under the new package, encouraging new business.