It has been interesting to hear the latest comments from the Governor of the Bank of England around the timing of interest rate rises, with the chances of a May rise now receding somewhat after he commentated that recent economic data has “muddied the waters”.
Inflation fell more than expected to 2.5% whilst retail sales have also been suffering and are at a lower than anticipated level. This does not mean however that a rate rise won’t happen at all and it still looks a cert this year, possibly just pushed back to August or even later in the year.
Whatever the immediate risks, there are a few things going on at present that mean we are seeing most of the main lenders starting to put their rates up.
One of these reasons may be the withdrawal of the Governments Term Funding Scheme, which helped with £127 billion worth of cheap funding for banks and undoubtedly kept rates lower for longer. Those that used the fund, of which there were quite a few, will now need to find more expensive forms of funding to lend out which of course will be passed on to consumers.
All of this together has put pressure on the costs of funds generally and we are seeing slightly higher rates as a result. The good news is that lenders all have pretty stiff targets this year and the battle for your business is as fierce as it has ever been. This competitive pressure is keeping rates lower than they may have been otherwise and has kept any rises to a minimum.
That said, another change from the Bank of England will mean lenders have no choice but to put rates up and those looking to remortgage soon are advised, as always, to at least review the market sooner rather than later.
Meanwhile, innovation in the mortgage market has proved to be alive and kicking as the Post Office launch a total of three innovative products aimed at First-Time Buyers and older borrowers.
Their new “Family Link” product allows parents to help their kids get on the property ladder by offering a 90% loan to the First Time Buyer and then a further 10% loan secured on their own property, providing there is no other loan on it. This second loan is interest free.
So the parents do not actually have to pay out any cash, getting an interest free loan with the charge lifted after 5 years.
Their other new product, the Post Office “Retirement Link”, is available for borrowers over the age of 55 looking to release equity on their unencumbered property on a capital & repayment basis up to a maximum age 90 at the end of term, up to 50% loan to value. Interest only has a maximum loan to value of 30% LTV up to age 80 at end of term.
They can borrow up to a maximum loan of £500,000 and will be assessed against pension income affordability.
It is good to see a mainstream lender and a trusted brand providing exactly the type of product that is needed for those older borrowers who are able to continue servicing a mortgage and who do not want to, or are unable to, sell their existing property and move on. Extending the age limits to 90 on a repayment basis and 80 on an interest only basis gives borrowers in this sector a real option other than a potentially more expensive Equity Release loan that will eat into their equity.
This will give older borrowers more time to consider their options carefully and I know that the Post Office have taken time to research this area of the market carefully and listen to consumer needs. It is refreshing to see a lender take this kind of approach and sets down a marker for other lenders to follow suit.
Barclays also got in the act with their “Green Mortgage” initiative. For those borrowers looking to purchase an Energy Efficient New Build Property, Barclays have laid on some specially discounted rates to help drive a move to greener properties.
At Coreco we love the idea of promoting a Greener world so this, in fact all the new innovation we have seen, is very welcome indeed.
Keep in touch with us for the latest developments and innovations in the market.