Competition is intensifying in the UK mortgage market as one lender cut rates below 1 per cent and another improved the terms for self-employed borrowers, in a sign of growing confidence in the economy and housing market.
Santander on Thursday told mortgage brokers that when assessing the mortgage application of a self-employed borrower it would set aside the 2020-21 accounting period if their business had been adversely affected by the coronavirus crisis.
With self-employed affordability typically judged on two years’ worth of income, lockdown has left many such borrowers unable to meet the requirements to qualify for a home loan or remortgage.
Instead, Santander will from Monday base its assessment on income in the two tax years prior to the pandemic.
Chris Sykes, associate director at mortgage broker Private Finance, said Santander’s move was a “fair” response to the skewing effect of the virus and other lenders were likely to follow suit.
“Over the last 3-6 months lenders have become more understanding about self-employed workers,” he said. “If you had been affected by Covid and are now back to normal levels of activity, it’s a lot easier than it was six months ago. Then, it was a blanket no. Now they’re being a lot more flexible.”
Santander’s assessment will include the impact of any of the emergency government loan schemes taken up in the pandemic, such as bounce back loans or CBILs. It limits the risk on self-employed mortgages by capping lending at 75 per cent of the property value, compared with a maximum 90 per cent at many other lenders.
Other signs of hotter competition came with the announcement of a market-topping sub-1 per cent loan from Hinckley & Rugby Building Society. On Friday it launched a two-year discount mortgage with an interest rate of 0.99 per cent. The mortgage will be available to those with minimum housing equity of 40 per cent and comes with a £999 fee.
Aaron Strutt, product director at mortgage broker Trinity Financial, said the new deal represented a substantial drop in Hinckley’s existing rates. “It’s quite a reduction for them. Lenders are especially keen for business at the moment.”
Nationwide this month cut rates across its range, with a 1.19 per cent five-year fixed-rate remortgage deal among its deals. This carries a £1,499 fee and a maximum loan to value of 60 per cent. For the same fee, Platform currently offers the lowest two-year fixed rate of 1.06 per cent.
In its latest survey of credit conditions, the Bank of England on Thursday said lenders expected the availability of secured credit — and borrowers’ demand for it — to increase over the next three months to the end of May, after a dip in demand in January and February.
After chancellor Rishi Sunak extended the stamp duty holiday and furlough scheme, and the rapid rollout of the UK’s vaccination programme, housing sales have continued to boom.
Andrew Wishart, property economist at Capital Economics, said: “The extension of the stamp duty holiday, high household saving and incentives to move from increased homeworking are set to ensure demand remains strong over the summer.”
He added that against a backdrop of economic recovery, “concerns about a possible drop in house prices continue to diminish, leading banks to report that their risk appetite is beginning to return and that they are aiming to increase market share”.
House prices reached a record high in March, according to the latest Halifax house price index, with prices 6.5 per cent higher than in March 2020.
Mortgage deals have been appearing at higher loan to value ratios, after the chancellor’s announcement of a government-backed 95 per cent mortgage guarantee scheme aimed at helping first time buyers and home movers with small deposits.
Accord and Bank of Ireland last month launched five-year 95 per cent fixed-term mortgages at interest rates of around 4 per cent, though both lenders chose to remain outside the government mortgage guarantee scheme. Some of the big six high street lenders are next week expected to launch their loans linked to the scheme.
Interest rates on these low-deposit deals remain much higher than for less risky loans but brokers expect this to be the next battleground for lenders seeking to win new business.
However, lenders remain cautious about “opening the floodgates” to customers while still operating under some pandemic restrictions, said Mark Harris, chief executive of mortgage broker SPF Private Clients. Those who offer market-beating rates risk being inundated with business while many staff are still working from home.
“If a lender shoots to the top of the best-buy list and is suddenly taking six to ten weeks to process a mortgage application they will drop off the favoured lists of brokers — and brokers control three-quarters of the market,” he said.
This has often led banks and building societies to pull their deals after only a few days, he said. “It’s quite common to see rates launched and then two or three days later see them withdrawn again, where demand for that product was overwhelming for the lender.”