Inflation fall makes December rate cut more likely

The fall in the Consumer Price Index to 4.5% has led Mortgages for Business to believe that rates will be cut further in December.

The buy-to-let broker has also stated that it wouldn’t be surprising if the Bank of England slashes a further 1% off Base Rate before the end of the year.

While the spread between LIBOR and Base Rate remains wide – three month LIBOR currently stands at 4.15% – mortgage rates will be slow to follow suit although the market is starting to see some improved pricing in residential mortgage rates. A couple of lenders this week have launched fixed rate mortgages at 3.99% and tracker rate mortgages are available from 4.39%.

David Whittaker, managing director at Mortgages for Business said: “Buy-to-let mortgage rates will be slower to return and it may not be until early next year when confidence returns to the money markets and lenders set their targets for lending in 2009. Rest assured, at Mortgages for Business we are in constant contact with all the main lenders and will send updates out to our clients as soon as there is some positive movement.”


Three-month LIBOR falls 1%

Three-month LIBOR has fallen by over 1% to 4.49% on the back of the Bank of England’s decision to reduce the interest rate to 3% yesterday.

On Monday three-month LIBOR was set at 5.77% and on Thursday it was set at 5.56%. Sterling LIBOR is set by the British Bankers’ Association at noon from Monday to Friday and is based on rates being offered by 16 contributing institutions.

Many in the industry were concerned that unless interbank funding rates headed the same way as the base rate, it would do little to alleviate borrowing costs.

But the Bank of England Monetary Policy Committee’s decision to reduce rates 1.5% has clearly had an impact.

Jonathan Cornell, managing director of Hamptons Mortgages, says: “It definitely should make a difference. LIBOR is still around 1.5% over base and with three month LIBOR at this level gives lenders decent scope to price up tracker rates.

“But it’s a big fall and borrowers will benefit from lower rates in the coming month.

“Lenders realise if they stop lending totally and price themselves out of the market losses and repossessions will be higher.

“The quicker they roll up their sleeves and start lending sensibly the quicker the market will recover.”

Bank of England slashes interest rates by 1.5%

The Bank of England has slashed interest rates by a further 1.5% to boost Britain’s ailing economy. Following an emergency 0.5% cut in October, the Bank’s Monetary Policy Committee (MPC) has taken drastic action again as its focus switches from inflation to recession.

Britain’s basic rate of interest now stands at 3%, but it is unclear how much impact this will have for households and businesses.

The Council of Mortgage Lenders (CML) has already said its members are unlikely to pass on the rate cut to borrowers.

In a statement issued last night, the CML said: “It is important to allow for the fact that in the post-credit crunch environment, where Government and regulators expect lenders to operate lower-risk and higher-capital lending businesses, the pricing of mortgages relative to benchmark rates is highly unlikely to return to the very narrow margins of the pre-crunch era.

“And lenders will need to take account of the possibility of higher provisioning and losses in an environment of higher arrears and possessions. A decision not to follow a base rate reduction does not imply that the lender is ‘profiteering’.”

Further cuts are expected in the coming months, and some economists believe the MPC may reduce rate as low as 0% to try and stimulate the economy and reduce the effects of recession.

NLA doubts banks will pass on interest rate cuts

NLA Mortgages, the free sourcing and quotation system for landlords, has it’s doubts that today’s expected cut in bank base rate will encourage lenders to pass on the savings to landlords.

Simon Gordon, head of communications at the National Landlords Association, said: “It’s about time lenders started to play ball and pass these latest rate cuts on to landlords. Part and parcel of the Government bailout was the requirement for lenders to start lending to consumers. It’s critical for the health of the property market for landlords to have access to mortgage finance.

“Despite recent reductions to the base rate, there is very little evidence that banks and building societies are helping buy-to-let borrowers by cutting their rates. At a time where rental demand is on the up across the UK, many professional landlords will be looking to expand their portfolios, thus providing much needed housing.

“Demand for buy-to-let mortgages is high but landlords are being frustrated by a lack of suitable products. With fewer people able to get their hands on decent deals, there is a danger that the housing needs of many tenants will not be met.”

Base rate cuts prompt fixed rate exodus

Fixed rate mortgages have seen their popularity fall significantly since the Bank of England’s shock rate cut last month, new research suggests. Borrowers are increasingly moving to tracker mortgages, hoping to make savings in the future as interest rates fall, according to Spicerhaart Financial Services.

Spicerhaart’s latest mortgage survey also found first time buyers are beginning to re-enter the market as house prices have fallen.

With the Bank of England hotly tipped to make a further cut in base rates tomorrow, and with further cuts on the horizon, borrowers are looking to benefit by switching to a tracker mortgage.

Spicerhaart’s survey suggests the number of homeowners opting for tracker mortgages increased by 12.5% during October.

Fixed rates declined in popularity, down 11%, as borrowers hope interest rates will continue to fall as the Bank of England attempts to combat the economic downturn.

Steve Cox, operations director at Spicerhaart, says: “There has been a rush of borrowers to secure the remaining competitive trackers available. If the base rate is cut again on Thursday, which is very likely, these borrowers will reap the rewards.”

However, Cox says borrowers should quickly move to snap-up existing tracker deals, and many lenders have raised tracker rates for new borrowers following the Bank of England’s cuts.

Today, Abbey confirmed it would be raising rates on all tracker products by 0.5% as it anticipates a half-point reduction in base rates tomorrow.

Spicerhaart also found first time buyers are taking tentative steps into the housing market again as falling house prices improve affordability.

Over the past four months, the number of first time buyers earning less than £40,000 has increased by 16%.

Spicerhaart says the bottom end of the market has become particularly affordable, helping first time homeowners step onto the housing ladder.

Bank of England savings not passed on by 80% of lenders

Eight in ten mortgage lenders have failed to pass on the full benefit of the last three interest rate cuts to their customers, according to Moneyfacts. The news comes as HSBC announced it is unlikely to pass on any savings from the Bank of England’s expected base rate cut on Thursday.

Research by Moneyfacts found half of all lenders had not altered their standard variable rate (SVR) since the Monetary Policy Committee (MPC) made its surprise 0.5% rate cut in early October.

Furthermore, 82% have not helped their borrowers by passing on the full savings of the last three base rate cuts, equivalent to 1%.

Darren Cook, mortgage expert at Moneyfacts, says this may not be as bad as it seems, as many lenders have relatively low priced SVRs compared with their fixed rate offerings.

“In real terms, most lenders’ current SVRs are underpriced compared to the rest of the mortgage market,” he says, adding some current products have a revert rate lower than the initial rate.

“Base rate is expected to fall again next week and we could have a situation where even less or no lenders choose to pass on a benefit to their customers, in an attempt, in the short term, to allow falling interbank rates to catch up with their current rates.”

Evidence the next round of base rate cuts may have little benefit for mortgage lenders is already emerging, with HSBC saying it may not pass on any further base rate cuts to its mortgage customers.

Analysts are widely expecting decisive action from the MPC on Thursday, with a 0.5% cut seen as the most likely move in an attempt to improve consumer confidence and dampen the impact of a recession.

Variable rates gain popularity

35% of residential borrowers took variable rate mortgages over the past three months, up from 24% last quarter, according to Legal & General research.

However, residential borrowers still prefer fixed rates overall – 63% took fixed rates, down from 75% last quarter.

Buy-to-let borrowers prefer variable rates – 55% took this type of mortgage vs. 43% on fixed rates.

Legal & General’s third report in the ‘Mortgage Purchase Index’ series analyses trends from over 19,000 mortgage applications made in the last quarter. It also found that the average residential mortgage was just 60% loan-to-value over the past quarter.

Two year fixed rates have become cheaper, but three, five and ten year products more expensive.

Stephen Smith, director of housing at Legal & General said: “As suspected, the popularity of fixed rate mortgages peaked last quarter when we found that three-quarters of borrowers were taking this type of mortgage, compared to 63% in Q3. Trackers will have attracted greater attention as forecasts of base rate cuts become more prominent. The popularity of variable rates has also perhaps been boosted by the number of borrowers sticking with their lender’s standard variable rate when they came to the end of a deal rather than remortgaging straight away. This approach of sitting on the fence is a sign of the times and would have been unheard of a year or so ago. Fixed rates over the past three months have been ‘expensive’ compared to the beginning of the year, although two-year deals have dropped somewhat recently.

“The average residential borrower has been able to put up a 40% deposit, which indicates that whilst there are many people with healthy levels of debt, there are now far fewer mortgages being offered with high LTVs. This has lead to the average LTV for residential borrowers falling throughout the year. On the other hand, the average LTV for buy to let borrowers has risen from 67% to 73%, showing that cash-rich landlords are taking advantage of the increasing demand for rental accommodation.”