Bloomberg Audio Studios, Podcasts, radio news. Hello listeners, Meren zumazepwbare. I just wanted to remind you that if you are enjoying our weekly podcast, and I hope you are, you will also probably really enjoy my weekly newsletter for Bloomberg subscribers. It hits in boxes every Saturday. This past week I wrote about why the similarities with the nineteen seventies and the two thousand.
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the personal finance edition of Meren Talks Money. In these blonus podcasts, we talk about the best strategies for making the most of you all money. I am Maren sumset Web and with me as ever senior reporter and Money to Suld author John Steback Hi John, hi elm Right,
we are onto one of our favorite topics. Well it really house prices is our favorite topic, but we're actually going to revisit mortgages, which is connected to our favorite topic, and of course, dear to all of our hearts for those of you who are new to the show, last bring we published an eight part series on how to buy a house in the UK, which I strongly recommend, by the way, But since then, the landscape for interest rates in particular has changed drastically, so we thought it
was worth revisiting this topic and looking questions like what is the best type to get now, who has the best rate, what's most important when trying to choose the best mortgage for you? And of course also is now really the best time to buy a house at all? To help us for that, we welcome back to the show Anthony Emerson, Director at Trinity Financial.
Hello Anthony, Hi Maren, how are you good?
Thank you and thank you for joining us again. We really appreciate it. Now you've already heard me say the question is then going to ask you, so why don't we just start? The landscape is saying a lot since we last saw you, last spoke to you do, run us through what's been happening.
The landscape has changed dramatically. I mean, last time we spoke, we were on a journey where we were expecting one, maybe two Bank of England based rate cuts. The inflation looked like it was a little bit more in control, and then it's flipped entirely on its head and we are now in a position where the Iran war has created an immediate surge in the interest rates that are
available to clients. We saw within a two week period and increase of around about one point two percent in the cost of borrowing, which is exactly the opposite of what we were hoping for.
Yeah, one points so up from what was it before. What was the sort of classic two effects before the war began.
The lowest rates are available at the point where the war started was around about three point six, and then that jumped up to four point seven as the sort of best rate option that was about available, and that was we're a stonkingly high forty percent deposit.
Wow, if we went out today with say a classic ten percent deposit looking for two year effects, what would we end up.
Paying at the moment just short of five percent? And that I mean the interest rates went up by sort of one point two where everything was in excessive five percent. But since then we've seen a little bit of a softening as the swap rates have edged downwards a little bit, and I think the uncertainty caused lenders to over compensate
for the uncertainty. And then as things have sort of panned out and they've got more of an idea of how it's going to affect, we've had the rates come down a little bit, run about sort of point two of a percent, So we still that one percent higher. The lenders, bless them, are doing absolutely everything they can to try and get us into the properties that we on. I mean, we've seen more and more lenders these days
change their affordability calculations. So we've now got more lenders lending five and a half times your income, even up to six times your income for certain people. And you know, we have really reached that inflection point still where that whole debate about rental versus owning on a month to month cost basis, as if you're young, then you've got a deposit, it probably makes sense for you still to buy a house than it is for you to rent really it is.
Yeah, and it's not getting a little closer with these prices. I mean, I always think when you see when you see a lender prepared to offer six times income in a in a dodgy economy with very low growth in rail wages, particularly in the private sector, it makes me feel nervous that maybe they've relaxed those affordability measures a little too much.
I can totally see where you're coming from on that. But the problem is the Renters Reform Act has also kicked now, which is meaning that we've got more and more landlords leaving the sector, and that means that we're going to have less rental properties available, which is going
to drive the prices up. It's going to have completely the opposite sort of effect that maybe the government wanted, but it is definitely going to mean that renting is going to get more and more expensive as we move forward.
Interesting, so you'd expect buying to become more affordable, prices to come down, and we're seen suddenly at a collapse in house price growth and we're seeing falls in absolute nominal terms in quite a lot of areas now, particularly in London, and you'd expect that to continue partly as a result of this rental reform, I think so.
I mean we're seeing that flats in particular, which were the vast majority of the rental stock, a lot more stock is on the market and therefore those prices are being pushed downwards because of the supply and demand imbalance. You can probably pick up a fairly decent deal in the rental in a flat market at the moment, then you could maybe compared to a year or two ago. That means that obviously, if you are a starter, first time buyer, there is probably a couple of good deals
out there which will make sense. And obviously the bigger the deposit you've got. You know, we're looking at rental properties. If you bought something at circus six hundred odd thousand pounds and you were, you know, in your early thirties, you could probably get a mortgage costing year round about two and a half thousand pounds on a capital repayment basis,
even at ninety percent lines of value. Now those sorts of properties from what we've seen, are renting for around about two and a half thousand pounds, so it's quite equitable, but obviously in your in your capital repayment mortgage, there is an element of capital repayment which you are getting back over the course of time.
Yeah, so that that whole thing can still work. So do you think that rates have settled for now?
Who knows at the moment. You know, we've had We've had a couple of lenders just this morning saying that they're reducing their rates. But when I say reducing their only coming down by zero point zero five of a percent, So it's very very nominal. We are very nervous about the fact that inflation is a sort of rear wood looking metric, and we are yet to see the full effect of inflation and the pressures that that puts on
everything else come through in the figures. So we think that, you know, the cost of fuel, fertilasa and all the other bits and pieces is really going to come to the foe in the next couple of months, and you might see rates remain at this sort of level for a while while they wait for more data to come through.
Okay, I'm nice. Pose it the question that I know that everyone wants to ask, And if I hadn't interrupted John, I think he might have been about to ask it. Sorry, John is if you need to remortgage in the near future, do you do it now or do you wait? And from what you've just said, it rather sound to me like you would say do it now because these inflationary infacts are still to come.
We have this conversation with people all the time where they think that you need to wait to be able to secure something. You can remortgage your property if you're up for remortgage up to six months early earlier than your expiry dates of your current product. If the rates improve from that point going forward, you can always ditch the application that you've made, either with your existing lender or with a new provider, and then reapply for a new rate or new products, or whatever it might be
going forward. I'd much rather clients are prepared and get their mortgage set and settled six months ahead of time, and then every month catch up with their mortgage broke just kind of say, let's have a look at the market again. Has it improved? Should we make another application for something cheaper? Too many people are leaving it right to the last minute, and if something goes against them, they may very well end up paying quite a bit more than they had to.
I haven't realized you could do that kind of rolling rearranging.
How do you, John, I was aware of that. I'd just would like to just double check. Are they don't say to that Antony late. For example, you don't have to pee the arrangement fee up front. There's no sort of non refundable costs involved.
Generally speaking, John, you have lenders providing you with free valuation and free legal transfer nowadays, and because of that, we can secure something with no money down. The arrangement fee varies from product to product, from free to fifteen hundred two hundred to fifteen hundred to two thousand pounds for each product, but you can opt to add them to the loan at the end when the mortgage comp So therefore there's no money down from your side to
be able to get in and do that application. And at least you have something in your back pocket which basically allows you to protect yourself from any upward increase in rates.
Yes, so basically you should definitely do it, But there's no down't say to.
This, absolutely no downside other than the poor mortgage broker might need to do his job two three, four times over.
What about if you're what about if you're buying, you're taking on a new mortgage, and you say you say you're looking for a house right now, can you do the same kind of thing thing, Well, I haven't found a flat yet, but I'm definitely going to find one. Can I arrange a mortgage and then keep rolling that over or I can't arrange the mortgage until I've actually found the house.
You have to have found a property first in order to make a full mortgage application, and at that point the mortgage offer comes out, and as long as you haven't yet exchanged, we can keep reviewing the rate and change in the application accordingly. So if you took out a mortgage application with San Sander, for example, and you know the rate went from four point seven to four point five, we could ring San Sander up, get a new mortgage offer issued, and they would issue a new
mortgage offer at the lower interest rate. The reason that we say that you can do it up to the points of exchange is that once you've exchanged contracts, because you have to complete on a set day and a set timeline, it's very risky to go back to the bank and ask for a change to be made, because the bank has the right to reassess the entire loan
under whatever their new basis is. So affordability might have slightly changed, the kind of property that you're after might have slightly changed, so there is a risk that the lender might pull the product at that point. However, generally speaking, it doesn't affect the client's application. Okay.
So, given the length of time there often is between an offer being accepted and exchange, it's worth getting your mortgage offer in as quickly as possible because it gives you there's great optionality and that if rates go up, not your problem. If rates go down, you can reallygotiate.
Absolutely. That's one hundred percent correct, Okay. Interesting, and I think too many people, especially when it comes to remortgaging, don't really know that fact, and you know, they wait and wait and wait hoping for a better situation. Whereas you can do it as early as you want and then just review and review and review every month for the next five or six months. We can get a change of products up until the mid of the month
before your rate expires. So if your rate expires in June, we can get you know, a change in product up to the fifteenth To make.
Interesting because I've been noticing that deals are taking longer and longer to go through than they were even a year ago because of Chain's collapse, saying in a very sort of olden datish type of way. So if you have that length, this is really useful information.
That's on the purchase side of things, absolutely, you know purchases. The whole system and the way it works is somewhat archaic, but I don't really see it changing. We used to have the you know, the implementation of that Buyer's pack, which I thought would actually revolutionize things in a very positive way. Scotland manages to get everything sorted out before they put their house on the market. Can't really understand
why England hasn't followed suits. You go to other parts of the world twenty eight days from the day you accept. After seven days it goes unconditional and away you go. So it's just a different way of looking at it. But change is something that most people don't like.
Well, one thing I was going to ask, and I think this is something a lot of people will be curious about. So obviously the fixtureet has shot up to about four and a half four point seven, four point eight percent you can still get a tracker THET four ish four point one. Are you seeing people asking you for trackers? And what's your general teake on that.
The tracker differentiation? I mean I looked at interest rates in preparation for this at sixty percent loan to value. For example, the track RADS currently is three point nine six, whereas the same product fixed rate is four point four to two, So you're looking at nearly half a percent difference between the two products. Now that means that you could probably take two Bank of England based rate increases before you reached the situation where your fixed rate would
put you. Most of the truckers as well don't seem to have early repayment charges applicable to them, so it gives you more freedom to be able to make over payments refinance at a stage that the market may have improved. And it really just comes down to what you as an applicant have as a risk appetite. Because we have already somewhat priced into Bank of England based rate increases, so it is highly likely that by the end of this year you will probably be looking at nearly four
and a half percent on that track rate. However, if the rate then turns around and starts going downwards just as quickly as it went upwards, then you might very well find that product beneficial. If it keeps on going north, then that product is not as clever.
Suddenly everyone has to be an expert on inflation.
Right, correct. And I think it's being used more by people who are expecting some sort of windfall, big bonuses in inheritance, some sort of asset payout that they could then use that tracker rate and the flexibility that comes with it to make it rather large overpayment. Because when you're looking at interest rates at st four and a half odd percent, to achieve that as a net return in the market is a little bit more difficult than
most people would like. So therefore we're seeing a lot more people reduce their outside their mortgage lending because of the fact that it's got a guaranteed return if you.
Like, yeah, well the offset mortgage. Are you seeing demand for that less?
Yeah? Less and less popular, mainly because of the fact that it costs the lenders so much to administer it.
Okay, so it's the lender who's finding it unattractive, not the borrower.
The borough will generally find it quite attractive if it's used correctly. But what we see on our side is that offset mortgages are generally around about sort of fifteen to seventeen percent more expensive in rate than you'd be able to get a standard product for now, that means that you have to have that amount of money or more in your offset account at all points during your mortgage in order to be able to meet what you
could have got on a standard mortgage. It's only if you've got more than that sort of seventeen percent that you start to benefit compared to what you would have had on a normal mortgage. It works quite nicely for people who are capital raising because they are at the end of their fixed rates and they want to do a massive home renovation and all that money needs to
set somewhere while they drip it out over time. But you know, if you haven't got the right situation for the requirement for that, then it isn't a product that is as popular as you want as you might think. Most people who have that cash available try and pay off the mortgage with it.
Yeah, okay, so this all seems relatively straightforward. We'd have no idea what's going to happen. Next in terms of interest rates. So you might as well get a deal on the table, whether you are buying for the first time or whether you were remortgaging, and just keep reviewing it up until the last minute and take it from there. But there's no point in sitting around waiting.
I definitely wouldn't advocate that atrole.
John, I interpreted you again.
Sorry, No, this is a really minor point. But one thing I have noticed and sort of keeps the current to me, is that whenever we used to talk about the property market prior to the financial crisis, there was basically no such thing as a setup fee other than an awful lot of free mortgages. And now you know, set up fees are as you say, they see me, start about a grand and go as high as two. How do you what do you say to people in
terms of thinking about set up fees? What should you be looking out for, What do you need to consider in terms of how it actually affects the cost of the product.
The setup fee basically comes down to mathematics. John. You know, if the differentiation between a product with a fee and one without a fee, multiplied by your loan balance over a two, three, or five year period that you take the mortgage for generally will always you know, we'd advocate the product with the fee if the savings are more than the cost of the fee. And as far as the fee is concerned, obviously we're talking earlier about, you know,
the financial impact of applying for a mortgage. We never really advocate that a client pays for a pays for an arrangement fee upfront, mainly because of the fact that if we change lender, you then have to go back to them and ask for a refund. And there's a little bit luck dealing with HMRC quick to take your money,
but really slow to get it back. So I would say to you that, you know, you add it to your mortgage, but each one of the lenders generally has an overpayment facility allowed, which is ten percent of the
outstanding mortgage balance. So if you add the fee, best practice would be your first payment goes out, you ring the lender up, you make that one thousand pounds cash payments, and effectively you won't be incurring any interest on that money, but you still be benefiting from the cheaper rate that
that product gives you. We generally find the magic number seems to be around about one hundred and seventy one thousand pounds, because at that sort of level of loan size, the multiple between the rate difference means that paying the fee at thee thousand pounds is either worth it or not. Once you go to two hundred three hundred, four hundred thousand pounds worth of lending, then generally speaking, the fee product is always worth taking.
Yeah, yeah, Okay, that's.
Just all have on that.
Okay, last question, last question, I'm going to ask you the impossible question away from mortgages. When you look at the property market in general, and I know that you just said that maybe there are good deals around on flats for younger people who maybe first time buyers, etcetera. But then there are all those worries about plodding service charges, all that kind of thing around the edge, the uncertainty about what's going to happen with leaseholds, all these kind
of things are all that out there as uncertainties. But across the market as a whole, how does it look to you? And we've seen a lot of real terms, quite dramatic declines, particularly in London, did it look to you like things are going to pick up? From here, or does it look to you from the business you're seeing that everything's going to stay a little uncertain for a while.
I think the market is split, in my opinion, into three. You've got your super prime London properties which you know, very very high values, lots of foreign buyers coming in and buying those properties or not, as it might be, they've seen a bit of a knock in confidence in pricing because of the fact that you know, the government, the taxation structures, all the other bits and pieces work
against them. Then you've got your stock standard UK house which you know for a family unit that seems to be quite strong and still achieving in most cases it's asking price if not over And then you've got your third,
which is your your flats. Now all those things that you mentioned earlier, you know, the lease hold, the fact that your service chargers are you know, quite quite high on a lot of these new build properties and the like, and the uncertainty as to what's going to happen with the lease is leading to those properties being a little bit more uncertain and a little bit lower in price than we would have seen a couple of years ago.
And I think that's also coupled with the fact that we are seeing so many landlords exiting the market, we've just now got an imbalance with an oversupply of properties, and that uncertainty is meaning that the demand is not there because the interest rates are a little bit higher
given the Iranian war. If we were still in that position where the interest rates were closer to sort of three and a half four percent, it might very well be a very different conversation that we're having now, because, like I was mentioning earlier, on that inflection point where rentals and owning, you know, have got to this level they kind of equal at this point, whereas you know, before the war in February March, it was notably cheaper for you to be able to own a property if
you could, rather than rent it. So I think we are going to remain in a situation where flats are a little bit less in demand. And I think the flip side of that is that from what I noted, the builders aren't really building as much as the government
wanted them to. They had a target of one point five million extra homes for the most part, but those builders are way under target and actually not pushing forward with new developments at the speed that they musk that they thought they would have because of all these other issues.
Yeah yeah, okay, all right, well a bit optimistic. Not that optimistic, John.
Anything, family houses are going to do very well because you know the builders are building flats, they're not building houses.
Yeah yeah, John, anything else we should ask before we move on?
Thanks for the thing that will makes perfect sense?
Okay, brilliant, Thank you, Anthony. I hope that was helpful to anyone who's wondering about mortgages. But if you have more questions, to write in and let us know. Thank you, John, Thank you, Anthony. Thanks for listening this week's Maren Dogs Your Money. If you like our show, rate review, and subscribe wherever you listen to podcasts, and'd be sure to follow me and John on ex or Twitter. I'm Maren
s w and John is John Underscore Stepic. This episode was produced by Samasadi and Moses and sound designed by Aaron Casper. Questions and comments on this show all our shows are always welcome. Our show email is merin Money at Bloomberg dot net.