What is happening in the mortgage market? Read Anthony Emmerson's update

by Aaron Strutt

Jan 17 2023

Anthony Emmerson is Trinity Financial's director.

The new year has started and the mortgage market is looking much more positive.

We have seen virtually all of the major mortgage lenders reprice and reduce their rates to try and be more competitive. Five-year fixed products are available at just over 4.3%, and two-year fixes start at around 4.60%. This is a significant change from the 6.5% plus mortgages we saw in November and December.

Five per cent deposit mortgage lending is back, and prices start at around five per cent, which is very good news for first-time buyers. It gives them a decent rate and a high loan-to-value to aid them in their quest to get onto the property ladder.

Tracker rate mortgages are certainly the main topic of conversation at the moment with my clients, as there is an expectation that rates will rise this year. We hope to see inflation under control towards the end of 2023 and into 2024. As a result, the focus of the Bank of England may switch from curbing inflation to stimulating the economy with cheaper lending. 

The two-year tracker rates start at just 0.24% over the Bank of England base rate, which is currently 3.50%. Compared to fixed rates for two years, trackers still look worth the risk as overall average mortgage costs might lower over the two years with a variable rate deal. 

What is happening in the buy-to-let market? 

The buy-to-let market is still really tricky at the moment. The increased rates have caused the stress tests applied to affordability to rise in line with these increased rates. This has meant that even achieving a 50% loan-to-value on a London buy-to-let property is now unlikely. 

When refinancing clients, we must keep most landlords who need to refinance with their current mortgage providers by doing a straight product transfer, as no questions are asked. If we try to switch them away to a new provider, it's proving impossible in most circumstances to meet the new affordability criteria.   

We have a lot more conversations with landlords around the need to subsidise their new monthly payments from earned income to boost the maximum loan size, as rental income, in many cases, is not sufficient to cover the new interest costs at these higher rates. 

When you also factor in the income tax charged on the gross rental, those subsidies can reach over £500 PCM in some cases. These landlords are now considering their options on toughing out the next two years and paying the extra from earned income or selling the property. 

I would expect more landlords to elect to sell in the coming six months, as these extra subsidies plus the cost of living increases are going to really stretch some landlords beyond where they can afford.

Lenders providing more generous income multiples 

Mortgage lenders can still be generous, with more banks and building societies now offering 5.5 x income for higher earners. Accord for Intermediaries has launched a loan-to-income stretch, allowing clients to boost the multiple from 5 x to 5.5 x income in certain cases.

Besides the buy-to-let situation, the overall feeling about the mortgage market is much more positive. Rates are more manageable, affordability is improved, and we are certainly seeing a far higher influx of enquiries for agreements in principle for new buyers who now feel it's ok to make the move to a new house or flat. 

There are also more discussions on borrowing to allow for extensions and loft conversions. This shows confidence to invest in their property asset rather than just hunkering down and saving the cash.

Call Trinity Financial on 020 7016 0790 to secure a mortgage or book a consultation