Towards the back end of last year and the first quarter of this year, the Bank of England has taken drastic steps to cut the base rate of interest on loans and savings, until it has reached an all time low level of just 0.5 per cent and the rate has remained at his level for the past six months now.
Despite these historically low rates, those individuals with personal loans and homeowner loans have seen very little change in the rate they pay (unless they are on a tracker rate loan), particularly if they are looking for a new loan. There still remains a large disparity between the bank base rate and the rates charged by lenders for new loans.
One reason for this disparity has been due to the difference between the bank base rate and LIBOR (London Inter Bank Offered Rate), the rate at which banks are able to borrow money on the wholesale markets.
Over the past few months LIBOR has been much higher than base rate, reflecting the high risk in lending to banks over this period. But now LIBOR has fallen to 0.58 per cent, only 0.08 per cent above the base rate and theoretically this means that lenders will be able to charge lower interest rates on loans, due to lower wholesale costs.
Hannah Mercedes Skenfield of moneysupermarket.com, said “This might just mean the market is returning to pre-crunch conditions, and we could even see LIBOR fall below the base rate in the near future, meaning interbank lending will be cheaper than the official lending rate which the Bank of England offers to the market.
Theoretically consumers should reap the benefits of reduced mortgage rates. However, there is still no evidence of rate cuts being fed through to the consumer. Banks can no longer hide behind higher LIBOR rates as an excuse for keeping mortgage rates artificially high, but I fear consumers will be forced to pay through the nose for credit of any kind.”
Over recent months there have been more positive signs for the housing and homeowner loan markets, with lending criteria starting to ease slightly and a wider range of new loan products entering the market, even with loan to value limits starting to increase. However, the same can not be said for those landlords looking for a new buy to let loan, either to purchase new properties or remortgage their existing portfolio, as the number of buy to let loan products continues to shrink, despite a high demand for rented property.
A new survey, which has been conducted by buy to let specialist lender Paragon Mortgages amongst Landlords across the UK, has found that just over 50 per cent of these landlords have attempted to obtain a new buy to let loan over the course of the past three months. Almost 90 per cent of these individuals thought that it was now harder to obtain the loan they required than it was during the previous three months. This is hardly surprising, as there were only 196 different buy to let loan products available on the market at the end of August this year, a reduction of 94.4 per cent on the same time last year.
John Heron of Paragon Mortgages said “Product availability in the general mortgage market has improved slightly in recent months, but has worsened for the buy to let market. Mainstream lenders are reducing their focus on this sector and specialist lenders are still unable to access the wholesale funding markets to enable them to offer new products. Buy to let lending has slumped and there is a real danger that the private rented sector could start to contract, particularly if the accidental landlord begins to sell property. This would be disastrous for those sectors of the population that rely on the private rented sector for their housing needs.”
Both the housing and homeowner loan markets in the UK have been severely hit by the effects of the credit crunch over the course of the past couple of years, with confidence dropping amongst those looking to buy a house, along with a lack of wholesale funding causing banks and building societies to severely restrict their lending criteria and range of homeowner loan products, leading potential buyers to believe that they will not be able to get the loan they require in order to buy the house they want.
But now, new research from the Building Societies Association (BSA) has shown that buyers are starting to return to the market due to the belief that it is now easier for them to obtain a homeowner loan, as the number of loan products begins to increase and lenders are slowly starting to relax their lending criteria.
Just under half of those individuals looking to buy a house (49 per cent) now believe that they will have a problem obtaining a homeowner loan, compared with 58 per cent of buyers six months ago. A growing number of individuals also now believe that it is currently a good time to consider buying a property, due to low interest rates on loans and relatively low house prices, although 58 per cent of potential buyers said that they were being put off applying for a loan due to rising unemployment.
Paul Broadhead of the BSA said “It is clear that home buyers are increasingly viewing the property market in a positive light as confidence increases in the market. With mortgage availability perceived to be increasing, prospective buyers are more confident of securing funding to purchase a property. However, buyers are clearly treading with care and worries over job security continue to deter many from buying.”
It was reported two weeks ago that HSBC had launched a new range of homeowner loan deals which were clearly designed to throw the gauntlet down to other banks and building societies and also to take a large number of loan applications away from their major competitors.
The new range of loan products, which include a discounted rate loan at a rate of just 1.99 per cent for two years, were launched on the 1st September this year and since that date, HSBC have seen the number of loan applications and enquiries they receive double through their online loan application service and the number of phone calls received by the bank has increased by around 78 per cent since July and August this year.
The range of homeowner loan products are proving to be so popular that HSBC’s loan call centres are now operating at the highest level of activity they have experienced for more than 12 months. It seems that, at the moment at least, other lenders are unable to offer any loan deals which come close to HSBC’s range of products, which continue to dominate the best loan deal surveys conducted by independent researchers.
HSBC accounted for 9.7 per cent of all new loans in the first six months of this year and this figure looks likely to rise in the near future, unless other lenders are able to offer more competitive loan deals.
A spokesman for HSBC said “since announcing the 1.99% deal we have seen a huge amount of interest from customers. Although there’s been some unfounded speculation that the deal would be reserved for a minority, in reality well over half the UK’s 11.5 million mortgage holders qualify for the deal and HSBC continues to accept more than seven in ten applicants.
HSBC is on track to meet its lending target of £15 billion by the end of the year. Our highly skilled underwriting teams are pro active in looking for ways to responsibly say yes, within two days on average and we continue to approve loans for over seven in ten applicants.”
Legal & General mortgage club, the specialised loan and mortgage club for Financial Advisers and homeowner loan brokers, has launched a new service to its members which offers large secured loans and mortgages to high net worth clients.
The service will allow intermediaries and loan brokers to source funding options for their clients for loans up to a maximum of £50 million, as well as being able to continue to source a range of exclusive loan deals for more normal amounts of borrowing.
As this is an extremely specialised area of lending, each new loan will be judged on a case by case basis by Legal & General and will depend on the particular circumstances of the borrower, with the loan eventually being specifically tailored to suit the client’s needs and requirements. Although Legal & General will be packaging the loan service, the funding will ultimately be provided by a range of loan companies which will include some high street banks, private banking companies, specialised loan companies and boutique lenders.
Ben Thompson of Legal & General said “There’s evidence that there is no real shortage of buyer interest for prime property in London and beyond because of reduced prices and an advantageous exchange rate. There also however appears to be a shortage of properties for sale, which is generating competition amongst potential purchasers and we feel that the time is right to start offering a high net worth lending service.
Again we’re showing that the Legal & General mortgage club is not just a place to come for standard products. So far we have added a personal loan service, expanded our commercial finance service and now added a high net worth lending service.”
