Mortgage lenders buoyed by Bank of England intervention – Financial Times - 24line


Follow Us

الأربعاء، 28 سبتمبر 2022

Mortgage lenders buoyed by Bank of England intervention – Financial Times

Mortgage providers and brokers said the emergency bond-buying programme launched by the Bank of England on Wednesday had raised hopes of a quick return of the fixed-rate deals hastily withdrawn by lenders after turmoil hit the markets in the wake of UK chancellor Kwasi Kwarteng’s tax-and-borrowing plan.

Banks and building societies had pulled hundreds of mortgage products for new borrowers in recent days as their business models came under pressure from gyrations in the gilts and swaps markets, which they use to price home loans.

But UK government bonds rallied after the intervention by the central banks with 30-year gilt yields falling by 0.75 percentage points to 4.3 per cent — the biggest drop in yields for any single day on record — from a two-decade high earlier in the day. The BoE said it would continue its gilts purchases until October 14.

Andrew Montlake, managing director of broker Coreco, said the BoE’s move would give lenders confidence to return with more products if it helped stabilise an “erratic” funding market. “Lenders want to come back in. They only see this is a very short-term scenario and they all plan to return — some within a couple of days, some within a couple of weeks.” 

Ray Boulger, a broker at John Charcol, said the intervention would “make a significant difference in calming the market”, adding: “I would have thought by certainly the end of this week, lenders will have again enough confidence to decide where they need to position their mortgage rates.”

A record 935 home-loan products were pulled from the market overnight on Tuesday, more than double the previous record set during the Covid-19 pandemic, according to independent data provider Moneyfacts.

The withdrawals followed Kwarteng’s mini-Budget on Friday, which spooked investors and dramatically raised the costs of new lending for banks and building societies.

Mark Bogard, chief executive of the Family Building Society, said the BoE’s intervention would make a difference by steadying the costs of borrowing on the bond markets. Swings in swap rates, which respond to the gilts market, had left many lenders unable to price their mortgages in the wake of Kwarteng’s fiscal package.

“It’s the volatility that makes lenders shy of coming up with a product. But everyone wants to do it as quickly as possible because otherwise you’re paying for a shop and you’ve got nothing to sell,” he said.

The central bank’s gilt buying programme would help broader market sentiment, he added. “If you’re a customer or a broker, then you’re absolutely in a Tesco place of ‘every little helps’. The governor of the Bank of England has gone from quantitative tightening to quantitative easing in very short order. And we all know that throwing money at the system definitely helps.” 

One lender, Virgin Money, was expected to return with new mortgages by the end of the week, according to a person familiar with the matter.

Richard Donnell, executive director of research at property website Zoopla, said the central bank’s action was important over the longer term in ensuring mortgage finance was available at stable rates. “Buying a home is now a six-month process end to end. Volatile pricing of mortgages could stall the market more than the actual level of mortgage rates.”

But Lucian Cook, head of UK residential research at estate agent Savills, questioned whether the emergency intervention would really settle lenders’ jitters. “The fact that the BoE has intervened in the first place will actually make people more cautious. I think it will be some time yet before the mortgage market settles down and [lenders] can rationally price long-term mortgages,” he said.

“Given the level of change and pace of change, a lot of people in the housing market will just sit on their hands and wait and see until there’s a bit of clarity,” he added.

Which UK mortgage providers have pulled products and why?

High street bank signs
The biggest lenders have come up against their own internal quotas on how many products they can sell each day © Chris Ratcliffe/Bloomberg

Barclays became the latest UK bank to withdraw mortgages from the market on Wednesday afternoon, saying new customers would no longer be able to buy certain fixed-rate products, which ranged from 60 per cent loan-to-value to 90 per cent.

Lloyds Banking Group — the UK’s largest mortgage provider — Santander, TSB and Virgin Money have also pulled products this week, as well as a host of smaller lenders, including Atom Bank, Yorkshire Building Society, Nottingham Building Society, Bank of Ireland, Leeds Building Society and Paragon Bank.

Which providers have kept mortgages open and what is happening to them?

With more than a third of UK mortgage products withdrawn this week alone, would-be borrowers and their brokers have turned their attention to the larger lenders that have kept their offerings intact.

However, this has caused a scramble for available deals, with some brokers reporting having to wait in online queues behind up to 700 other applicants.

The biggest lenders — such as HSBC and Barclays — have come up against their own internal quotas on the number of products they can sell each day and have closed for business early.

Others, including Nationwide and Santander, have continued to offer products, but increased interest rates, making them more expensive for borrowers.

What does the swap market have to do with mortgages?

Banks need to mitigate the risk of interest rates rising when they offer mortgages at a fixed-rate, otherwise they take the hit. As a result, they swap a stream of fixed payments from the borrower to a counterparty — typically another bank — which in return gives the bank a floating rate.

Larger banks typically hedge their funding several weeks ahead, meaning fewer of the biggest mortgage providers have removed products outright, though some have already started to reprice them.

But the smaller mortgage providers and challenger banks have been forced to move quickly and pull back from the market to avoid selling products that have already become more expensive to hedge. High street lenders that generate stable income from their large pools of deposits and operate on bigger profit margins are not as sensitive to short-term shocks and moves in swap rates.

Brokers and analysts expect providers across the board to raise the rates on mortgage products in the next six months as the swap market responds to likely central bank rate hikes.

Where are mortgage rates heading and will I be affected?

Borrowers on fixed-rate deals will not be affected by rising rates, until their term expires. Those on tracker mortgages will follow the Bank of England’s base rate up, plus a percentage applied by the lender.

Further rate rises are on the cards even if the Bank of England’s intervention helped lower the yield on longer-dated gilts which influence fixed rate mortgages.

More than 2mn borrowers with fixed-term products will need to remortgage between now and the end of 2024, according to Bank of England data.

Owen Walker and Emma Dunkley

Techyrack Website stock market day trading and youtube monetization and adsense Approval

Adsense Arbitrage website traffic Get Adsense Approval Google Adsense Earnings Traffic Arbitrage YouTube Monetization YouTube Monetization, Watchtime and Subscribers Ready Monetized Autoblog

from Mortgage and Finance – My Blog

ليست هناك تعليقات:

إرسال تعليق