Michael Aglony's Blog

Views, news and opinions on the Buy to Let mortgage market from Mortgages for Business.

So what's next after Base Rate is held at 0.5% again?

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Thursday, February 25, 2010

A Reuters Poll of 53 economics units (including the main banks) in January disclosed a wide range of views on where BBR will be at year end - RBS - 0.5%, LBG - 0.5%, BCL - 1.5% and HSBC - 2%. The median result was 1% but the median for the end of 2011 was 2.5% so inflation in 2011 was recognised as a challenge but then SWAP rates were generally higher.

Since then confidence about recovery has wained and SWAP rates have trended down to their lowest since the start of the credit crunch. Across the pond the Fed has made it clear that they will hold rates down for a sustained period post the first signs of recovery and here economists are muttering that whilst cuts in governement spend, especially bureaucaracy and fringe projects, are needed, too much panic cutting may not be such a good idea.

QE is halted for the time bieng - last monies due out in March - and it would be a sign of greater problems if new amounts were released in Q2.

The upshot of this is that confidence remains fragile and that lending margins may ease slightly if lenders fail to achieve new lending targets on the margins they have been able to charge over the past 9 or 12 months.

For those looking for Buy to Let mortgages there is slight movement and improvement so all is not lost!

Data indicates property market progress!

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Wednesday, September 30, 2009

News that the number of mortgage approvals on house purchases at 38,095 in August was 81% up on August last year supported the evidence on estate agent activity reported over the last few months. Not surprisingly the reduction in remortgage activity at only 26,124 and 47% against the same time last year reflects the reality that current mortgage products are much more expensive than one year ago and that "back book" rates don't look so expensive after all; as the 39,000 customers of Mortgage Express are seeing with most mortgages reverting to BBR + 1.75% ie 2,25% today.

However there is movement in the market...

At the high level Lloyds has just placed the first of three tranches of RMBS loans (AAA) totalling £4Bn with one tranche known to have been at 170bp. Whilst this is expensive money it frees up capacity (and liquidity) for Lloyds and ultimately is the first European RMBS since June 2008 - an important but necessary step towards establishing a new market.

At the retail level BM solutions re-priced earlier this month and withdrew the additional margin pricing on remortgage products; rumours about increasing LTVs abound but whilst the Buy to Let mortgage market is effectively controlled by a very small group of lenders achieving their desired levels of new cases, pricing won't change significantly. However the advent of Aldermore Bank (through a restricted broker panel) showing some appetite for HMOs and other property types is also a welcome step in the right direction.

We are hoping to announce a 3 year fixed product for HMOs in the next week or so ; activity at both landlord and lender level in the next two or three weeks will determine the remaining months of 2009.

Improved Funding for landlords

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Thursday, September 10, 2009

The re-launch of Base Commercial as Aldermore Bank in mid July was greeted by many lenders with raised eyebrows and helpful comments about when was the right time to enter property lending. Equally to some now is precisely the right opportunity to set out your criteria and appetite for new loans as competition in certain sectors is weak thereby allowing for better returns on moderate LTVs. Certainly landlords with Buy to Let and residential investment properties have felt the benefits.

The Aldermore Bank offering is simply presented as lending to 70% of value or purchase price on mortgage terms up to 25 years with interest only periods if only borrowing 50% or 60%. With a payrate of 5% and a completion fee of 1.75% this is market competitive and compares very favourably with some Buy to Let mortgages where completion fees of up 3.5% seem to be increasing...

The real benefit comes from their willingness to lend on HMOs, semi commercial properties and to Ltd Cos holding property. They will look at recent conversions or refurbishmenst purely on the merits of the new transaction without looking for the property to be held for a fixed period. They will also support young commercial owner occupier businesses at a time when the High Street Banks are increasingly nervous over too much exposure on property based lending.

Their Rent to Interest calculation is fairly robust but is more user friendly than the high street and on HMOs means that lending to 70% is a realistic option.

Finally, and of equal importance is their "short credit chain" with underwiters empowered to agree transactions with a credit team available at a moment's notice to give support to larger applications.

At last - Funding for HMOs, Freehold Conversions & Limited Companies returns! 23.07.2009

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Thursday, July 23, 2009

We at Mortgages for Business have been aware for some time that many Buy to Let landlords and property investors have been struggling to find finance for certain property types e.g. HMOs and Freeholds split into several self-contained units. Many of the lenders who were happy to lend on this type of property have left the market during the credit crunch, leaving many investors high and dry when it comes to mortgage options.

Mortgages for Business now has access to semi-exclusive funding available from Aldermore Bank Plc. We have been specially selected onto the Aldermore limited panel of brokers and such funding lines will not be available outside of this small selection of brokers.

Aldermore will consider the majority of Commercial and Residential property types and will lend to Limited Companies. If you have previously struggled to source finance for a particular transaction, Mortgages for Business may now be able to assist.

Access to these funds may be limited so we urge people to act promptly.

Increase in fixed rates as "perceived" inflationary pressures start to build. 22.06.2009

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Monday, June 22, 2009

Mervyn King hinted in his Mansion House speach that there were some signs that quantitative easing was starting to work and that the £125Bn injection may be sufficient - I really hope so !!

The SWAP markets had already reached the same conclusion with 3 year SWAP rates bottoming out in February at 2.3%, having hit 3.11% earlier this month but now bacl at 2.98%; we doubt that it will suatain a sub 3% position for very long. And sadly lenders have reached the same view and have been gently pricing upward on prodcuts to absorb a likley higher level of underlying pricing.

On the plus side lenders are looking forwards and starting to initiate discussions about criteria improvements and changes to product profile. Rest assured this has not been a topic of discussion since the autumn of 2007. Two niche lenders are looking at new Buy to Let offerings that might cater for limited companies or HMO properties, albeit at a price. The judgement, thereafter, is whether the ability to raise extra capital and perhaps conclude an additional deal is justifiable against a higher cost.

We will get back to you with an e-newsletter in the next week or two but if you want to chat through any scenarios in the meanwhile we can formulate a plan with you that is ready to go when the lenders start to change their stance.

Survey's report increases in house prices - 15.05.2009

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Friday, May 15, 2009

There have been lots of conflicting reports from various recognised house price indexes of late, reporting property price increases and in the same month decreases, from a different institution. And lets face it, even if we went one month when they all reported a increase, one swallow doesn't make a summer.

However the Royal Insitute of Chartered Surveyors are getting behind the team and giving their perception of events based on a survey of its members. And its good news.

Rics spokesman Jeremy Leaf has said that "Transactions remain at very low levels, and we are unlikely to see significant improvements while money remains in short supply and the employment picture is uncertain,"

However, surveyors remained upbeat about the potential for new business. The survey showed that enquiries by potential new buyers had increased for the sixth consecutive month. Some 41% more surveyors reported a rise, rather than a fall, in new buyer enquiries in April, up from 32%. This was the highest figure for almost a decade. The increase came in every region in England and Wales - especially London, East Anglia and north west of England - except the north of England. A regional breakdown showing the situation in Scotland and Northern Ireland is not provided by Rics.

Newly agreed sales also rose in April, and expectations of sales in the coming months were in positive territory in every region in England and Wales.

It wouldn't be wise to hang out the bunting and bang the 'we are saved drums' just yet, but once again, things are definitey looking like they are going in the right direction.

Why not take a look at the best mortgage deals at this moment in time.

Base Rate stays at 0.5% for a second month - 07.05.2009

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Thursday, May 07, 2009

No surprise that the Bank of England have kept Base Rate at 0.5% for another month. Time will tell whether the Bank’s Quantitative Easing programme will have the desired effect of boosting the supply of funds in the market but, dare I say it, there appears to be some stability returning to the market. It would not surprise me to see Base Rate remaining at 0.5% for the next 12 months!

The availability of mortgage products is also improving. Great rates are now available for your own residential mortgage and we are also helping a number of property investors who are now looking to snap-up bargains and expand portfolios. Our message continues to be that now is the time to act whether you are looking to purchase or remortgage. Buy to Let fixed rates, and residential fixed rates have bottomed out and whilst Base Rate is expected to stay low for some time, the cost of longer term funds is on the rise. If you are looking for stability during the next interest rate cycle and want to lock in for say 3 or 5 years you will need to move quickly.

You can also keep an eye out for further news via our Buy to Let Blog and residential blog as well as e-mails over the coming days and weeks.

Base Rate remains unchanged at 0.5% - 09.04.2009

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Thursday, April 09, 2009

As expected, the Bank of England have kept Base Rate on hold at 0.5% this month, halting the steady trend of reductions over the last few months. With the MPC’s ammunition more or less spent in this area, all eyes are now on the Bank’s Quantitative Easing programme designed to stimulate the much need liquidity into the market.

As mentioned in numerous blogs and articles over recent days, mortgage rates would appear to have bottomed out and now is the time to act if you are looking for competitive Residential mortgages or Buy to Let mortgages. Fixed Rates are proving popular with both homeowners and investors with many borrowers now looking to lock into 2, 3, and 5 year rates before the cost of funds starts to rise over the coming months.

For those of you looking at Commercial Mortgages, there are again some good deals to be done whether you are an investor, developer or are looking for premises for your own business. Despite what you read in the press, Banks are lending and with the cost of funds relatively low, there some very attractive commercial rates available for the right deal.

It will not be long before rates are on their way up!

As the market bottoms out, now is the time to secure that property bargain - 03.04.2009

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Friday, April 03, 2009

Previoulsy we set out to explain the differences between some of the leading house price indices on the market. At that time The Halifax HPI had just posted a month on month increase of 1.9% whereas the Nationwide HPI indicated drop of 1.3% (in line with most of the other indices published).

Well guess what - the picture is now reversed with Halifax reporting a drop in March of 1.9% and Nationwide reporting an increase of 0.9%.

Under normal circumstances the volumes of transactions handled by each of Halifax and Nationwide should ensure that the indices produce comparable results - but the reduced transaction volumes and the extraordinary general market conditions at present mean that these differences are not too surprising. However the fact that we are seeing these differences rather than just uniform price reductions probably means that the market is on the turn. I don't want to give the impression that I believe we will soon see prices starting to rise again - rather that we have moved into the market phase where we can expect to see conflicting data regularly. And that over the course of the year we will see the ratio of negative buy to let mortgages and residential mortgages news move steadily in favour of the positive.

Halifax also reported that house prices are currently 4.4 times average earnings compared with a long term average of 4.0. In normal circumstances we would expect a significant "overshoot" in a price correction so that prices might end up at only 3 times earnings. But much of the data in the recent past upon which this is based occurred when interest rates were considerably higher than at present so that the costs of ownership and hence affordability of housing was much worse. For this reason we think that a major overshoot in price reduction is unlikely and so if you want to be buying at the bottom of the market you should be looking in earnest for that bargain now.

The Turner Review may impact Buy to Let warns Lord Turner

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Wednesday, March 18, 2009

The Tumer Report covers a broad range of sectors but has reserved its judgement on Buy To Let and second charge mortgages until September. If some of the commmentary on how they might restrict Loan to Income multiples might be applied in future goes ahead in its current form (such as 3.5 x Multiple applied whether interest rates are 12% or 4% rather trhan expressed as a%age of disposable income with in a minimum notional rate to cater for articially low rates like now !!!), then the Buy To Let lenders will be facing an uphill struggle.

There is an essential principle at stake which is being overlooked. Buy To Let is a business activity whether you own one or 350 properties. You are in it for profit and drawing a line between the owner with a single Buy To Let to enhance their overall retirement provision to the active landlord refurbishing property , extending others, perhaps even selling some to use up CGT gains would require the judgement of Solomon which has been remarkably lacking in the FSA to-date.

In its effort to regulate Buy To Let it is likely that the FSA will create a regulatory monster so as to embrace all the complexities of a Buy To Let property and the business aspirations of the borrower......this might add such a burden to the time and "real" cost of the process that borrowers will approach lenders on a commercial mortgage basis to avoid the FSA paper trail. After all, this is where Buy To Let came form and many professional landlords keep Buy To Let property in "pot" facilities at banks.... or do we think that the FSA proposes to move further up the lending scale to include all aspects of business lending ???

There is also a tendency for some commentators to suggest that the lender and broker to a transaction are giving investment advice to the borrower at point of purchase which is false. Quite correctly the Buy to Let mortgage or loan needs to suit the borrower's needs but whether the investment or is appropriate or will perform over time is the commercial decision of the borrower.

Read the Turner Report here.

Now that Base rate has dropped to 0.5% it's time to fix!

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Wednesday, March 11, 2009

This will of course continue to improve the cash-flow of those borrowers on Base Rate linked loans (without collars!) but unlikely to have much of an affect on new mortgage products.

Only a 3rd of lenders passed on any of last month's 0.5% cut and I would expect even fewer lenders to act this month. That said, there are a handful of lenders (C & G, Nationwide, Skipton & Halifax) who have Standard Variable Rates (SVRs) that must never be more than a set percentage above Base Rate - they will have no option but to reduce their SVRs. For the rest, don't expect much movement and for those of you looking to move house or remortgage, I would reiterate that the products available now are probably as good as they are going to get and if you are looking for fixed rate mortgages for your home or Buy to Let fixed rate mortgages over the next 2, 3 or 5 years then now is certainly the time to act.

The additional announcement that the BoE will embark upon £75Bn of asset purchases financed by the issuance of central bank reserves is a welcome move in terms of trying to improve liquidity. Perhaps the most significant phrase in the published statement was "in the first instance" thus demonstrating the BoE's commitment to stimulate the economy with a series of measures if necessary.

None of this will change the economy and, in particular, the housing market overnight but these are alll essential building blocks on the way to recovery.

Northern Rock resumes lending - what will be its impact?

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Wednesday, February 25, 2009

The gov't announcement on Monday that Northern Rock will resume lending on homeowner mortgages with £5Bn this year and £9Bn in 2010 came after weekend speculation that NR would be lending £15Bn - funny how the press always seem to know what happens at NR before any real announcement.

The fact that only £5Bn will be lent in this year is acknowledgement that it will take time to build a pipeline from which to complete the loans. Given that we are approaching the 3rd month of the year this is a pragmatic figure for the remainder of 2009. They have been doing some lending over the past few months so it won't be difficult for then to gear up their operations.

That aside it is good news for the market for the following reasons...................

More money supply and improved lending criteria will help to ease the credit crunch and provide some competition in the residential mortgage market. As a consequence real lending margins may reduce slightly.

Whilst NR are unlikely to promote Buy to Let mortgage lending (they do actually have a couple of pricey Buy to Let products) the element of competition may encorage other lenders to switch some resources from residentail to Buy to Let lending.

Additional funding for personal residential mortgages is a pre-requisite for stabilising the housing market as a whole and much of the Buy to Let property is First Time Buyer or Second Mover property which will receive an uplift if homeowner borrowers start to re-emerge at the Estate Agents !

All in all a welcome development.

Will everyone benefit from the 0.5% Base Rate cut?

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Thursday, February 19, 2009

Much media focus over the last 5 months has focused not only on how much lenders reduced their SVR but also on the date at which it will be implemented. This is monitored very effectively by the BBC on http://news.bbc.co.uk/1/hi/business/7872344.stm and you can see who passes on what amount and how quickly they do, or don't, apply it. You can also see our own graph below.

Many residential mortgages are on fixed rate mortgages of 2, 3 or 5 year duration. These borrowers will generally be paying mortgages between 4.75% and 6.75% and will be looking carefully at the clause that identifies what price they will pay after the initial fixed rate period. The majority will revert to the lender's standard variable rate (SVR) which is at the lender's discretion and currently varies from 3% to 5.79% (ignoring one lender with an eye watering 8.44%). Several have already stated their intent to pass on the latest rate cut in full (Nationwide, LLoyds, HBOS and Woolwich) but this will still mostly be on a margin greater than Base + 2%. Borrowers should also check that their mortgage doesn't include a "collar" that would impose a minimum interest rate - for example 3%. The most fortunate borrowers are those who have a Bank of England Base Rate (BBR) linked mortgage where the 0.5% cut is applied with immediate effect !

For the very small group of borrowers who have a mortgage headline rate with a discount of 1% or more to BBR , there is the delightful prospect of a negative interest rate. In reality this simply won't happen but there doesn't yet seem to be an industry wide solution to this conundrum. Even when this is agreed, I doubt whether most lenders computer systems will cope !!

Buy To Let borrowers mostly benefit from mortgages that are linked to BBR or LIBOR rate and will have enjoyed ever improving cashflow in recent months. We have not identified any "collar" clauses in the Buy to Let mortgage sector. Some borrowers will be on SVR with a lender and if that lender is no longer actively supplying new mortgages they may not be passing on BBR cuts in full to borrowers - 4.84% SVR doesn't seem expensive until you equate it to BBR + 3.84%. Refinancing these mortgages to other lenders can sometimes also release equity for further purchases if gearing is relatively low.

Business borrowers are invariably funded to BBR or LIBOR rate - sometimes lenders will stipulate that loans above £1M, must be funded to LIBOR to mitigate risk. A few banks will offer "dual pricing on each transaction - BBR + 2.75% or LIBOR + 2% ie the differential between the LIBOR and BBR in the money markets. For these borrowers the issue isn't so much price as the availability of credit !!

The Government will maintain its focus on BBR and cite any lender as irresponsible who doesn't match the BBR reductions regardless of the real funding cost either from wholesale funds or from retail deposits. And of course this portrays them as the consumer's champion which will be important as a general election approaches; but now that they (and us as taxpayers) have significant stakes in both RBOS and Lloyds HBOS and full ownership of Northern Rock and Bradford and Bingley, they need to be mindful of their investment in these institutions when they issue headline grabbing statements.

By clicking on the below you can see a consolidated list of lenders and any benefits they have passed on. We will be updating this as things develop.

Bank Base Rate now seems set for 0.5% cut on Thursday

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Tuesday, February 03, 2009

There is an increasing acceptance that the woes of the economy at large will not be fixed and consumer confidence improved by cuts in Base Rate (BBR) alone. The media are now looking for signs of quantitative easing to improve market liquidity and thereby take the pressure off LIBOR rate that is stubbornly stuck at 2.17% - a premium of 67bps to BBR at 1.5%. Even SWAP rates have started to move up over the past week with 1, 3 and 5 year money at 1.77%, 2.44% and 3.01% respectively. This has tempered the appetite of lenders for reducing their fixed rate offerings ion both the residential mortgage and Buy to Let mortgage sectors.

Indeed even with a 0.5% cut in BBR to 1% there will be several lenders with discounted mortgage offerings completed back in 2007 where the effective pay rate is 0% or, theoretically, -0.01%. Whilst the conundrum of how their systems will cope with this equation is an interesting topic of debate , it does pose very real question marks over the returns to savers where many lenders are currently looking to resource funds for new loans and mortgages.

There is a view gaining support that BBR may reduce to 1% and stay there for a considerable period of time - but this doesn't yet seem to be showing up in SWAP rates. As with LIBOR rate some of these current pricing issues may be down to the reluctance of banks to trade when they still have concerns that some banks may yet face nationalisation.

The net result is that there are some good fixed rates out there which may not improve significantly unless and until such time that the markets find some equilibrium and medium term confidence.

B&B appoint Mortgages for Business for early repayment charge clients

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Friday, January 30, 2009

At Mortgages For Business we are delighted to have been appointed as one of two firms to assist Mortgage Express borrowers looking to take adavantage of the Early Repayment Charge waiver if borrowers redeem their loan in part or full between 1 February and 30 June 2009.

Some borrowers may find that their original broker or financial adviser is no longer active in the mortgage market and will be looking for guidance on how they can make best use of the waiver opportunity. Callers to Mortgage Express Call Centres asking for advice on other mortgages will be referred either to MFB or another firm.

We have a specialist sourcing system that allows us to quote on 120 Buy to Let mortgage products and we have already been able to quote and arrange new mortgages to redeem Mortgage Express. We can also look at other properties to release additional funds to maximise on the opportunity....

BBG Call Centres are understandably experiencing record volumes of telephone calls so if you need to confirm any details of the Mortgage Express Early Repayment Charge amnesty please don't hesitate to call us on 0845 3456788 - as their Referral Partner we know how the full scheme works.

It looks like Bank of England Base Rate could drop to 1% next week

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Thursday, January 29, 2009

The next MPC meeting on 4 February with its announcement on 5 February is heading towards a 0.5% cut in Bank of England Base Rate (BBR) down to 1%.

The prevailing view is that 1% will be the last of the cuts in BBR and thereafter the Government and BoE will adopt other tactics including quantitative easing although Danny Blanchflower who sits on the MPC still believes that rates could yet go as low as 0.25% or 0.5%. His view isn't shared by the SWAP markets where 1 year SWAP rates have gone up slightly to 1.71% and 3 year SWAP is at 2.50% (27 Jan 2009).

The premium between BBR and LIBOR rate is only reducing slowly and stands at 68bps ie 2.18%. Whilst there are good technical reasons restricting downward movement, the margin this close to the next announcement is indicative of a 0.5% reduction.

Will Base Rate stay below 5% in 2009?

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Friday, January 23, 2009

2009 is shaping up to be an interesting year, but hopefully not for the same reasons as 2008. The actions by the Bank of England and other Central banks has been to attempt to stabilise the global markets and right some of the wrongs in recent years.

How long this will last will depend on the length of the recession we are about to enter statistically. Most analysts tend to look forward 12 months for potential rate movements, as looking beyond this period becomes more difficult to project as there are too many variables.

At this stage the predictions are for a Bank of England Base Rate (BBR) of 1% within 3 months and 0.5% within 6 months. BBR is then expected to be held at this low rate until this time next year. By early 2010, it is hoped that the economy will begin to improve and business stimulated. With this improvement, demand for money will increase, and therefore BBR will again rise to keep the economy and inflation under control.

As to when BBR is likely to be at or above 5% is not in current forecasts, but the suggestion by those in the know are for BBR around 3 to 3.5% in the next 24 to 36 months. The Swap rates set on 20 January 2009 has 5 year money at 3.01%, suggesting longer term rates should stabilise. This is providing the economy doesn't over react and inflationary pressure force the banks to increase BBR more quickly as a control measure.

Naturally all of this is going to have an effect on Buy to Let mortgages and the suggestion at the moment is to get into a longer term fixed rate if possible.

It's all about cashflow!

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Thursday, January 22, 2009

These are tough times and as the recession takes hold many of us are now looking at ways of tightening our belts further. At this time of year, we are all looking at our expenditure for the coming year and deciding whether we can afford the family holiday, next term’s school fees, credit card payments, utility bills…. I could go on.

Those borrowers with Base Rate Buy to Let tracker mortgages have seen mortgage payments come down over the coming months but those locked in to relatively high fixed rate Buy to Let mortgages are now looking at ways to refinance to improve the monthly cashflow.

With residential mortgage rates now available below 4% and Buy to Let rates below 5%, now could well be the right time to pay a penalty on your existing mortgage deal, lock into a lower rate and reduce your monthly mortgage commitment. Paying a penalty and refinancing may not be right for everyone so please ensure that you get proper advice from your mortgage adviser.

If you are lucky enough to have a mortgage with the Bradford & Bingley Group (Mortgage Express, Keystone, and some GMAC/Kensington borrowers) you may well be aware that Bradford & Bingley will waive all repayment penalties if you refinance away from then before end of June 2009.

Our consultants are on hand to review your options and whether your mortgage is with Bradford & Bingley or not, it makes sense to review your mortgage arrangements today. You never know, you may be able to afford that holiday after all!

Mortgage Express are waiving all Early Repayment Charges!

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Tuesday, January 13, 2009

As you may be aware, The Bradford & Bingley Group (BBG) are no longer able to provide any new lending and may not be able to offer competitive deals in the future. Mortgage Express customers (part of BBG) may wish to reconsider their mortgage arrangements – either by selling a property, moving their mortgage to another lender or paying off some or all of their mortgage.

BBG also appreciates that those with an Early Repayment Charge (ERC) could be faced with a significant cost if they move their mortgage to another lender or make a capital repayment, which could be a barrier to considering these options.
So they have made the decision to waive ERC's for Buy to Let mortgage and Residential mortgage customers moving to another lender, selling or repaying some or all of their mortgage between 1st February and 30th June 2009.

BBG will be writing to borrowers with ERCs from 1st February to let them know about the waiver. Mortgages for Business is working closely with BBG to offer support to customers who want to seek alternative sources of finance. Mortgages for Business can help if you are tied in with Mortgage Express and we would be happy to discuss the options available.

SWAP rates and LIBOR rates on the move in 2009 - 13.01.2009

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Tuesday, January 13, 2009

The entry into the New Year was no doubt followed by many with a New Year's resolution on how to improve their lot in life and a glass or two, to bid fairwell to a truly awful 2008. Of course, there would be those that would ask, was the glass half full or half empty?

Irrespective of your view of life, the first few steps into the New Year may have been bright and sunny for many people, but like the weather it has been bitterly cold, just like the economic data and outlook. Sadly, 2009 hasn't introduced a clean slate and rid us of the "credit crunch" nor heralded a change of heart by lenders, yet...

Early economic results have been poor and sadly two further lenders, Bank of Ireland and Bristol & West have decided to close their doors to broker introduced business. Despite the news reports of those who prefer to see life as "half empty" and "we're all doomed", there are some positive aspects that need to be highlighted.

Much has been made by lenders of the Swap markets and cost of LIBOR funds to finance their loans. During much of 2008, the spread of Swap rates for 1, 2, 3, 5, 7 and 10 year funds was held in a tight range, with approximately 0.6% difference between the cheapest and most expensive. However, due to the volatility in the markets, 10 year swaps were actually cheaper than 1 year Swaps. The high cost of these rates reached a peak in late September 2008, at which time the 1 year Swap topped 5.81%, whilst 10 year rates reached a maximum of 5.26%.

The decision by the MPC at the Bank of England and other major Central Banks to instigate a unified reduction in Bank of England Base Rate (BBR), has helped in restoring some normality to the cost of these funds. When BBR began to fall in October 2008, Swap rates also began to settle into an expected order, with 1 year Swaps cheapest to buy and 10 year costs returning to be the most expensive.

Although slow at first, the cost of each of the Swap rates has continued generally downwards, although this has been coupled with a widening in the gap. Whilst the gap in costs in late September 2008 was 0.6%, as at 9 January 2009, 1 year Swaps stood at 1.77%, and 10 year Swaps stood at 3.49%, a difference of 1.72%. Not all lenders have yet embraced these lower costs, some preferring to introduce collars into their products or widen their margins. However, that is another argument.

The past year has also seen significant changes in the cost of LIBOR rates. It is hard to believe that on 23 January 2008, BBR was 5.50% and on the same day the LIBOR rate was 5.48%, remarkably 0.02% below BBR. Needless to say this pleasent situation didn't remain long, with BBR and LIBOR slowly diverging throughout 2008. Between late January 08 and June 08, the gap in the two rates increased, with LIBOR 0.96% over BBR by June 2008 and still remained at 0.7% above BBR in September. It was at this point that the wheels were perceived to have fallen off and banks became very reluctant to part with their money. This resulted in a wholesale removal of products, citing cost of LIBOR as the reason.

Following the first BBR reduction in October 08, LIBOR had increased to 1.77% above BBR. It took a full month to recoup the increase, and still remained 1.18% above BBR by the time we reached November's MPC decision. Following this historic reduction in BBR by 1.5%, LIBOR had increased to 2.56% over BBR.

So where is the good news, lenders haven't reduced rates in some instances. Well, part of this may be due to the lender having fixed its rates for three months and has not yet reached the review date. Alternatively, it may simply be due to them wishing to price themselves out of the market for the time being.

However, like the Swap rates over the past few months, LIBOR has also continued to fall at a reasonable pace. Despite jumps on the BBR reductions in December08 and January 09, the banks have supported the call for more assistance and LIBOR has made a good recovery, and is expected to be 2.33% (when confirmed on 13 January) only 0.83% above BBR.

Although it is too early to predict if there will be a further reduction in BBR in February 09, the longer term financial forecasts are predicting a fall in BBR to 1% within 3 months and to 0.5% within 6 months, this rate being held until this time next year. If this becomes reality, then there is potential for significantly reduced funding costs, which would hopefully bring lower borrowing costs later in the year.

If you wish to adopt a New Year resolution, the glass is half full and remain positive. With this overall reduction in the cost of funding, some reasonable short term Buy to Let fixed rates and residential fixed rate mortgages can't be too far away. If the cost of 5 and 10 year funds reduces further, there could be a strong argument to take advantage of a longer term fix, where appropriate.

We just need the lenders to start lending properly again and we are there!

Bank of England Base Rate cut by 0.5%. How will this effect Buy to Let? - 08.01.2009

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Thursday, January 08, 2009

Good Afternoon and a belated Happy New Year!

So, the Bank of England has announced a further 0.5% cut in the Base Rate. Rates are now at their lowest for 300years and could still go lower.

Liquidity in the Banking sector remains an issue but despite what you may hear, lenders are lending and we are seeing an increase in the number of Buy to Let mortgage products available. As a guide, before the last Base Rate cut, our internal sourcing system Mortgage Flow was showing c80 products available. Today there are in excess of 120 products and we would expect a raft a new products shortly as lenders take into account the latest reduction in the cost of borrowing.

As an example, one lender this week has already launched a couple of 1 year products. A 1 year fixed at 3.49% and a 1 year tracker at Base + 1.99% - both with a fee of 3.5% added to the loan. Expect further buy to let fixed rates to be available over the coming weeks and please keep an eye on our website which keeps all product information up to date and in real time. (All rates were updated within 5 minutes of today’s Base Rate reduction!).

Our website will also keep you updated on the movement of 3m LIBOR rate which has steadily reduced in anticipation of today’s Base Rate cut. The good news is that the gap between Base and 3m LIBOR continues to narrow with the spread only 50bps before today’s announcement (compared to a gap of 118bps in Nov and 79bps before December’s cut). The reduction in LIBOR along with the implementation of the various Government initiatives will improve confidence and liquidity amongst the lenders which in turn will lead to an increase in available mortgage options.

We will continue to keep you updated. In a complex market it has never been more important to get the right advice about your mortgage options – our Consultants are on hand to assist you and keep an eye out for further Buy to Let Blogs and e-mails over the coming days and weeks.

Market awaits Year End movements at Banks

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Tuesday, December 30, 2008

Many leading financial instituations with a 31 December Y/E will be adopting the well practised approach of hording cash on the Balance Sheet on the final day of the year.

In normal times they would unwind these positions in January and LIBOR and Bank Base would be closely matched by the month end. However with the prospect of another 1% or more Base Rate cut in January on the back of deepening economic gloom the opening meeting of the MPC (announcing on Thursday 8 Jan 2009) could boost the premium even further in the short term.

However this will lead to further reductions in SWAP rates and lenders will start to roll-out new domestic and Buy to Let products in the coming weeks. The issue may well be that "demand exceeds supply" so letting your broker know what you want by way or pricing should precent disappointment if lenders come to market only with limited tranches. We can then notify you when funds are launched that suit your purpose.

2009 will be an interestring year with some good opportunities - the NAEA are predicting a property spike already as there could be a shortage of stock with very few new homes coming out of the ground.

Merry Christmas and here's to a better 2009!

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Friday, December 19, 2008

To new and regular visitors to our Buy to Let Blog, I would like to wish you a very merry Christmas and a happy & healthy New Year. 2009 will be a tough year but as always, Mortgages for Business is well placed to advise and assist with your funding options.

Base Rate looks set to reduce further (don’t be surprised to see a further 1% cut as early as January!) and I predict that Base Rate will fall below 1% before the half year. Great news for all those on Base Rate tracker mortgages and many portfolio landlords will see improvements to cashflow as those tracker mortgage repayments continue to fall in the New Year.

The availability of Buy to Let mortgages remains an issue and despite the rapid fall in Base Rate, lenders will be taking a cautious approach going into 2009. The 3m Libor rate remains a full 1% higher than Base Rate and despite the Treasury’s efforts to get Banks lending to each other again, it may still take a month or two before confidence returns to the money & mortgage markets. That said, with SWAP rates bottoming out, I would expect to see the introduction of attractive 3 and 5 year fixed rates early in the new year and I would strongly recommend landlords to consider locking into decent 3 and 5 year money early in 2009. Mortgages for Business will continue to keep landlords updated as new products are launched.

With the New Year will come opportunities for those landlords who are in a position to purchase and add to their portfolios. Whilst there are many economists predicting a further 10 – 15% reduction in house prices, many landlords are taking advantage of the current climate and snapping up bargains where possible. Funding for purchases is available but as mentioned in previous blogs, lenders are looking for minimum deposits of 25-30% and investors should be prepared to pay more commercial type rates for what, in essence, is a commercial transaction. Our Landlord Information Zone can give you more insights.

I will update you further in the New Year when we should get a clearer idea of lender appetite and product availability. In the meantime, enjoy the festivities and all the very best for 2009.

3 month LIBOR continues to ease slowly - 16.12.2008

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Tuesday, December 16, 2008

There will be a limit to its downward movement towards the end of the year as those banks with 31 December year ends preserve cash on their balance sheet and let creditors rise accordingly. Effectively it may not go much below 3% in the short term yet with Base Rate at 2% it needs to get going again early in the New Year as pressure for another 0.5% cut down to 1.5% rises on the back of ever declining economic data.

In more rational times the MPC would wait until the retail sales figures for December were available along with preliminary January Sales from the major high street stores as well as the Quarterly inflation figures ahead of the February MPC meeting. But these are extraordinary times and with many retailers already having Sales in November and December, I am left wondering what they have left to discount come January - indeed, with rising unemployment and general consumer nerves, will anyone be out spending anyway ???

So a cut to 1.5% in January might even be followed by a further cut of 0.5% in February bringing BBR to a historical low of 1%. There will be little purpose to driving BBR even lower as bizarrely this may start to push SWAP rates up as the prospect of inflation will bring forward the time when rates start to go up again. Far better to provide a longer period of stability within which borrowers in all walks of life can source attractive fixed rate Buy to Let mortgages at all time lows.

Buy To Let lenders have a few products below 5% (the best is currently a 2 year fix from The Mortgage Works at 4.49%) but this number should increase in January.

Another encouraging sign is the number of products on our Buy to Let Sourcing System (now branded Morgage Flow) has risen in the past week to 109 different morgages. We expect this number to grow from mid January onwards........

LIBOR, SWAP rates, base rate and interest rates - we're seeing history being made - 11.12.2008

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Thursday, December 11, 2008

The Bank of England's decision to further reduce Bank Base Rates (BBR) in December, to rates not seen in over 50 years, demonstrates the analysts view of the severity of the current economic turmoil. Whilst we don't appreciate it at this time, history is being made and events now will be talked about long after we are gone.

The reaction of the banks in setting LIBOR and SWAP rates over the past week have followed a similar trend to that displayed following the two previous BBR reductions in October and November. As before, SWAP rates have reacted much quicker to the changes with 1 and 2 year money currently standing at 0.45% and 0.91% over BBR. These rates have fluctuated in the past few days, but the trend is still downwards from their peak in late June.

LIBOR however, has again dragged its heals and although there has been much criticism of the banks to stimulate the flow of money, LIBOR remains well above BBR. Following the latest Bank of England rates decision, LIBOR sat at 1.72% above BBR. This fell by 0.34% to 1.38% over BBR the next day, but this was the last significant fall. Since then, LIBOR has fallen more modestly, but still remains stubbornly well above BBR. As at today, it is 1.25% above BBR a far cry from the 0.02% below BBR in January 2008.

As many lenders fund off of LIBOR, or set their rates for a 3 month period, it has meant that despite the reduction in funding costs, not many of the lenders have yet adjusted their rates. Two of the best known names TMW and C&G have reset their Buy to Let rates this week and it is rumoured BM Solutions may have some new products just before Christmas.

With Christmas around the corner and some lenders also reaching their year end on 31st December, the speculation is for little activity from the lenders until January, when they will look to get 2009 off to a better start than 2008 has finished.

More needs to be done by the banks to ease borrowing rates. The first signs have appeared in the residential sector, with new products in the mid 3% region, which appears to have increased the number of buyers in the market. The lenders need to regain some confidence on buy to lets, hopefully this is not too far away.

Base Rate reduced to 2%

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Monday, December 08, 2008

So Base Rate has been cut by another 1%. Bearing in mind Mervyn King's comments earlier in the month, the reduction is no real surprise and is confirmation (as if we needed it!) that we are heading for tough times in 2009.

All eyes now on the 3m LIBOR rate tomorrow and it will be interesting to see how the money markets react. 3m LIBOR yesterday stood at 3.79% and likely to be around 3.72% today. What we need now is for the gap between Base Rate and LIBOR to continue to narrow although it may still be a few months before we go back to the traditional spread of 15-20bps.

Today’s Base Rate reduction is great news for those on Base Rate tracker mortgages although with some lenders, collar conditions will now apply. It would not be a surprise to see a further cut early next year before rates level out and then start to increase slowly in 2010. SWAP rates continue to fall and provide an indication of the cost of longer term money and suggest that early next year could well be the right time to lock into a decent 3 or 5 year Buy to Let fixed rate mortgage. What is certain is that in the lead up to Christmas and despite today’s Base Rate cut, we are unlikely to see any real movement in mortgage products until January at the very earliest.

The return of Buy to Let as a commercial transaction

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Tuesday, December 02, 2008

When the Buy to Let mortgage market started in the early 90’s, Loan to Values were at a maximum of 75%, underwriters made decisions to lend based on the overall viability of the transaction and commercial rates were charged.

For the foreseeable future, Buy to Let mortgages will be available on similar commercial terms and the professional landlord, who is in it for the long term, should consider the rates and terms currently available and make a commercial decision on whether the whole investment, including the cost of borrowing, makes sense. There are still deals to be done out there but the days of a 10% / 15% deposit and rates similar or even better than residential mortgage rates are behind us for now. At the height of what, with hindsight, was a crazy time in the mortgage market, Buy to Let lenders priced for market share and dropped their guards on underwriting.

Regrettably this led to some unscrupulous individuals in the industry abusing the system – we have all read stories of rogue brokers, valuers, solicitors, accountants, borrowers…..I could go on. Some lenders are now facing huge arrears on fraudulent cases. As well as fraud, the downturn in the economy has led to borrowers facing financial hardship adding to the lenders’ arrears.

The Council of Mortgage Lenders (CML) arrears figures for Q3 will show an increase in the number of mortgage arrears and for the first time, arrears on Buy to Let will be higher than those in the domestic mortgage market. The lenders’ focus therefore has gone from generating new business to managing arrears and fraud and it is no surprise therefore that lender appetite for new Buy to Let mortgages has diminished and that terms will now be offered on a more commercial basis. Back to where we started in the early 90s.

Perhaps when banks start lending to each other with confidence and the wholesale money markets open, we may see a slow return to more attractive pricing. This may take a year or two and in the meantime, landlords should be prepared to consider more commercial borrowing terms for what, in essence, is a commercial transaction. For now, rates are available at 75% Loan to value and more attractive pricing is available if you have larger deposits / equity.

Landlords should also consider using a specialist broker to ensure that they are getting the best advice and access to the best lenders and products. With lenders now looking to control volumes and quality, it is likely that they will consider making products available via select distribution channels only – now is the time to ensure you have the right professionals on hand to guide you through the terms available.

Michael Aglony

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