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June 2024 Mortgage Market Update

When I walk into a shop or browse online, I am faced with a huge choice of products on offer. I often become overwhelmed and confused. Sometimes to the point of just giving up and not buying anything, or often buying the wrong product! These days it is the expectation of consumers that they can have this choice and retailers have to keep up.

Commercial mortgages are going the same way. Recently it has became clear that anyone looking for a mortgage could easily become overwhelmed and end up with the wrong product if not properly advised.

Below is a small section of a presentation I recently gave to a room of property investors. This shows the range of products and rates variable available from just 1 lender! Multiply that up by hundreds of lenders and how do you choose what is right for you.

Buy to LetMUFBHMO
LTV5y IntArrTotal pa5y IntArrTotal pa5y IntArrTotal pa
          
75%4.99%7.00%6.39%5.49%7.00%6.89%5.49%7.00%6.89%
75%5.39%5.00%6.39%5.89%5.00%6.89%5.89%5.00%6.89%
75%6.09%1.50%6.39%6.59%1.50%6.89%6.59%1.50%6.89%
75%6.39%0.00%6.39%6.89%0.00%6.89%6.89%0.00%6.89%
          
One lenders product offering as at June 24

Just with one lender headline rates vary from 4.99% to 6.39% for a 5 year fixed deal. But be aware one product has a 7% arrangement fee the other 0%.

The key is to think about your priorities before looking at the products. The key questions to consider are:

  1. Is Loan to Value your priority? Do you need to maximise the loan because you have to clear an existing balance or extract funds for your next project
  2. Is monthly cash flow the priority so keeping the interest costs low to maximise the monthly profit?
  3. Do you need flexibility. Is there is any chance that you will need to remortgage or sell the property in the medium term?  If yes, you don’t want to have paid high arrangement fees and have high exit fees that push your overall cost of borrowing up.
  4. Fixing for the longer term can give you certainty and protect from future rate increases. But you may not benefit from rate cuts which are higher than expected today.

The question we often get asked is when is the best time to refinance, will rates drop further? Of course, we can’t predict with certainty where rates will be next year or in 5 years. The mortgage companies already reflect the market expected changes in rates when they set their 2, 3 and 5 year rates.

We track rates and market forecasts. The table below shows simply where the market thought rates would move in June 23 and now in June 24.

Forecast Annual Rates
Year 1Year 2Year 3Year 4Year 5
Jun-235.38%5.23%4.64%4.32%3.94%
Jun-244.92%4.21%3.79%3.68%3.37%
Implied rates from forewards

You can see that the forecast rates have dropped slightly since last year. For example, last year rates were predicted to be 5.38% they are now 5.25%. Last year the 5 year rate was 3.94%, the equivalent year now is 3.68%. The rates probably have not moved enough to change your decision and make a huge difference to whether your investment is commercially viable or not.

Currently markets are expecting small staged cuts in the base rates. But as I have said many times forecasts are just that, forecasts and often they are wrong! We will keep monitoring and providing updates.

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