Analysis | How to Escape Minor Mortgage Pain


This was the most positive comment I heard when speaking with a UK mortgage expert this week. The recent turmoil in the gilt market has made securing real estate loans a risky activity.

NatWest Plc, one of the UK’s biggest lenders, actually raised the lending rate on its most popular mortgage loan on Monday, amid new Finance Minister Jeremy Hunt’s first address in the House of Commons. If interest rates have risen sharply over the past two months or so, it doesn’t take long for risk managers to sound the alarm bells. Most mortgage offers are binding for up to six months, so it’s understandable that lenders would withdraw the most attractive deals, wait until the dust settles, and then compete aggressively.

Since mid-August, yields on 10-year gold leaf have more than doubled to around 4%. Yields were even higher until Hunt abandoned his predecessor’s tax plans. The interbank swap market, which benchmarks the funding cost of banks’ fixed rate deals, is around 5% for 1-5 year maturities.

Most mortgages are over 6% at first glance. A year ago, you could secure a five-year fixed rate of just 1%, while the base rate was just 0.1%. Those days are probably gone forever. Many offers are now deliberately unattractively priced to avoid business, so it’s a good idea not to read too much into the average or horrible articles in the media.

But prospective homebuyers rarely ask for average deals. They want the lowest competitive rate available. At 5.39% (through well-known lenders like Nationwide Building Society), Peter Tsouroulla, head of mortgages at Trinity Lifetime Partners, said he could secure his five-year fixed contract at 85% of the loan amount. is still possible. Financial advisory firm in London. This interest rate improves to 5.19% for a longer fixed term of 10 years (based on a 25-year lifetime mortgage).

But things soon calm down.

The real trick seems to opt for tracker mortgages if you can handle the heat from higher interest rates a bit more. with a credit premium of 0.75-1.25% added on top. Both NatWest and Barclays Plc are offering his two-year tracker at 3% (which goes up to match the base rate). All mortgages revert to the lender’s standard floating rate once the fixed rate or teaser rate period ends. Most are refinanced quickly, as these are usually considerably higher than the facilitated fixed rate deals.

In times of stress like ours, unusual complications like small down payments, poor credit history and irregular employment can make securing a loan nearly impossible. In addition, rental prices, which are set annually, often lag behind mortgage costs, making the rental housing market more illiquid as lenders shy away from potentially riskier loans to landlords. Tighter tenant eviction regulations make it difficult to quickly secure the underlying assets. Lenders have a notoriously procyclical fear, reducing capital flow in tough times and usually overdoing it in good times. So if you can wait the time, it’s worth the wait.

While official interest rates have likely not peaked, the money market for the pound has already effectively priced it at a much higher level of around 4.5%, and mortgage lenders are making all this money. I’m taking it into consideration. It should eventually peak around 4% and begin to decline by 2024.

Naturally, mortgage providers appreciate existing customers with a decent track record. As such, new borrowers and first-time buyers find it more expensive than re-mortgaging for homeowners. Ultimately, however, greed will overcome fear once again when financial market volatility subsides. Patience is a virtue if you want to secure a better financing deal for your roof overhead.

Bloomberg Opinion Details:

The Truss Skanders Thatcher Legacy and Homeowner: Thérèse Raphael

• The UK rental market is broken, but not irreparable: Stuart Trow

• Buying a house now is not a bad idea: Teresa Ghilarducci

This column does not necessarily reflect the opinions of the editorial board or Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Opinion columnist covering the European market. Previously, he was Chief Market Strategist at Haitong Securities in London.

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