Marketing No Comments

Should You Track the Market or Lock it In? Unveiling the 2024 Tracker Mortgage Advantage in the UK

The year is 2024 and for UK homeowners, navigating the mortgage landscape can feel like a tightrope walk. Interest rates are fluctuating, fixed-rate deals remain competitive, but a potential glimmer of hope shines through: tracker mortgages.

For the uninitiated, tracker mortgages mirror the Bank of England’s base rate, meaning your interest rate adjusts accordingly. So, the question arises: are tracker mortgages a viable option in 2024, and can they truly surpass the stability of fixed rates? Let’s delve into the key benefits and considerations to help you decide.

Unlocking the Potential Benefits of Tracker Mortgages in 2024:

Potential for Lower Rates

While current fixed-rate deals are enticing, they reflect a cautious market anticipating future rate rises. Tracker mortgages, however, track the base rate, which could fall in 2024. This translates to potentially lower monthly payments and significant cost savings over the mortgage term.

Flexibility and Freedom

Unlike fixed-rate counterparts, tracker mortgages often come with no Early Repayment Charges (ERCs). This translates to greater flexibility. You can overpay without penalty, capitalizing on lower rates and potentially shortening your mortgage term. Moreover, some trackers offer the option to switch to a fixed rate penalty-free if the market shifts, providing an added layer of security.

Transparent and Predictable (to an extent)

While future rate changes are never guaranteed, the base rate serves as a clear reference point, making monthly payment fluctuations more predictable compared to fixed rates, which are subject to market uncertainties.

Understanding the Differences and Benefits of Fixed and Variable Mortgages

Riding the Economic Wave

If economic forecasts hold true and the base rate starts falling, tracker mortgages allow you to capitalise on these reductions immediately. Fixed-rate borrowers, on the other hand, remain locked into their initial rate, potentially missing out on these savings.

However, the tracker mortgage journey isn’t without its caveats:

1. Interest Rate Risks: As the base rate rises, so do your monthly payments. This increased financial vulnerability can be stressful, especially for those on tight budgets.

2. Market Volatility: While trackers offer potential savings, they do expose you to fluctuations in the base rate. This can be unsettling for homeowners seeking guaranteed stability.

3. Limited Availability: Tracker mortgages are not as widely available as fixed-rate deals, and lenders often impose stricter eligibility criteria.

UK house prices to rise by 3% in 2024

So, is a tracker mortgage right for you in 2024?

Ultimately, the decision depends on your individual financial situation, risk tolerance, and economic outlook. If you’re comfortable with some flexibility and potentially lower rates, and you believe the base rate might fall, a tracker mortgage could be an attractive option. However, if you prioritise stability and predictable monthly payments, a fixed-rate deal might be more suitable.

Remember, carefully assess your financial circumstances, thoroughly research the market, and consult a qualified mortgage advisor before making any decisions.

As a Commercial Finance Broker work with ALL UK Mortgage Lenders offering all options for tracker, fixed and variable mortgage deals and have highly experienced CeMAP Mortgage Advisors to discuss your needs, so Contact Us today for totally FREE quote and no-obligation advice.

Marketing No Comments

Scrapping the mortgage market affordability test ‘is not as reckless as it may sound’

The Bank of England (BoE) announced yesterday that its Financial Policy Committee (FPC) will withdraw the so-called mortgage market affordability test, designed to avoid another 2007-style credit crunch.

Introduced in 2014, the test specifies a stress interest rate for lenders when assessing prospective borrowers’ ability to repay a mortgage.

“Following its latest review of the mortgage market, the Financial Policy Committee has confirmed that it will withdraw its affordability test Recommendation,” the BoE said in a statement.

The move means that lenders will no longer have to check whether homeowners could afford mortgage payments at higher interest rates.

Contact us today to speak with a specialist Commercial Finance Broker to discuss how we can assist you.

The decision to withdraw the affordability test comes despite the Bank of England having raised interest rates for a fifth time in a row to 1.25% last week as part of efforts to tackle soaring inflation, meaning some mortgage borrowers could be in line for higher repayments.

The Bank of England, which originally consulted on the changes in February, confirmed that it would scrap the affordability test after determining that other rules, including those that cap mortgages based on the income of borrowers, were “likely to play a stronger role” in guarding against an increase in household debt.

Some experts yesterday described the rule changes as “baffling” in light of rising interest rates. But Mark Harris, chief executive of mortgage broker SPF Private Clients, believes the move could prove sensible.

He said: “Scrapping of the affordability test is not as reckless as it may sound.

“The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front. Lenders will also still use some form of testing but to their own choosing according to their risk appetite.

“It could have a positive affect on certain borrowers who have been disadvantaged when it comes to getting on the property ladder. For example, first-time buyers who have been affording rents far in excess of actual mortgage payments but have failed affordability assessments regardless.

“The rate environment and expectations have changed significantly since the rules were introduced when borrowers were tested to ensure that mortgage repayments could be met should rates be in the region of 6% to 7%.”

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Lawrence Bowles, director of research at Savills, believes that from a market perspective, removing the current stress testing “could mitigate some of the impact of higher interest rates”.

He commented: “In theory, at least, it should open up a little more capacity for house price growth than is currently looking fairly constrained in the mainstream housing market.

“This said, a fairly high proportion of recent buyers have worked around the “standard variable rate plus 3%” stress test by locking into five-year fixed rates, meaning it will only preserve or open up additional borrowing capacity for part of the market. Lenders will still stress test applicants to reflect where they expect interest rates to be five years from the start of the loan, following the Mortgage Conduct of Business rules.

“Improved capacity for growth would also be dependent on how far lenders are prepared to push loan to income multiples under responsibly lending rules and caps on what they can lend at high loan to income ratios. It is unlikely to open up the mortgage-credit floodgates.

“It should allow lenders to be slightly more flexible which will come as welcome relief to some would-be-buyers struggling to keep up with current criteria because of significant price growth of the past two years – but saving for a deposit will remain the most significant barrier to home ownership.”

By Marc Da Silva

Source: Property Industry Eye

Marketing No Comments

Bank of England predicts 7.25% growth in economy as interest rates held at 0.1%

The UK’s economy could grow by more than 7% in 2021, according to the latest Bank of England forecast – the fastest pace since the Second World War.

Their projection is that the UK gross domestic product (GDP) – a measure of the size of a country’s economy – will rebound by 7.25% and mark the best year of growth since official records began in 1948.
This represents a sharper recovery than the central bank’s previous forecasts, with 5% growth previously expected.
It comes after the pandemic saw the UK suffer the biggest drop in output for 300 years in 2020, when it plummeted by 9.8%.

But the Bank’s quarterly set of forecasts showed it downgraded its growth outlook for 2022, to 5.75% from 7.25%.

The rosier view for the economy this year came as the Bank’s Monetary Policy Committee (MPC) held interest rates at 0.1%.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

The Bank kept its quantitative easing programme on hold at £895 billion, although one member of the MPC voted to reduce it by £50 billion given the brighter recovery prospects.
In minutes of the latest decision, the Bank of England said the lockdown is set to see GDP fall by around 1.5% – far better than the 4.25% drop first feared.

It also sharply cut its forecasts for unemployment over the year.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

The Bank said: “GDP is expected to rise sharply in 2021 second quarter, although activity in that quarter is likely to remain on average around 5% below its level in the fourth quarter of 2019.

“GDP is expected to recover strongly to pre-Covid levels over the remainder of this year in the absence of most restrictions on domestic economic activity.”

But it warned over “downside risks to the economic outlook” from a potential resurgence of Covid-19 and the possibility that new variants may be resistant to the vaccine.

Source: iTV

Discover our Mortgage Broker services.

Marketing No Comments

Bank of England holds interest rate at 0.1%

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the bank rate at 0.1%.

The BoE has warned banks to be prepared for the possibility of negative interest rates within six months.

The committee confirmed that the COVID-19 vaccination programmes are improving the economic outlook, and since the MPC’s last meeting, they say financial markets have remained resilient.

UK GDP is expected to have risen slightly in Q4 2020 to a level around 8% lower than in Q4 2019, which is stronger than expected in the MPC’s November report.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

The bank suggests that there would be a “rapid” recovery in GDP towards pre-pandemic levels this year, due to the vaccination programme.

However, the BoE outlined that the outlook for the economy remains “unusually uncertain, and that it depends on the evolution of the pandemic, measures taken to protect public health and how households, businesses and financial markets respond to these developments”.

The MPC has said that it will continue to monitor the situation closely, and if the outlook for inflation weakens, the committee is ready to take any “additional action necessary to achieve its remit”.

Nick Chadbourne, chief executive of LMS, said: “It’s no great surprise that Bank Rate remains at 0.1%, and it’s good news for homeowners as it keeps mortgage rates down.

“LMS data shows that on average, borrowers taking advantage of low rates decreased their monthly payments by £236 in December.

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

“Recently we’ve seen lenders prepare for a busy remortgage market in Q2 with a steady stream of high loan-to-value products returning to the market and the introduction of increasingly competitive rates.

“While product transfers can offer a great deal in terms of ease and efficiency, as competition between lenders grows, borrowers should be seeking advice to ensure they are accessing the best deals available on the market.”

Ian Warwick, managing partner at Deepbridge Capital, added: “The pace at which the vaccine rollout has progressed has been incredibly encouraging and will provide much needed hope for people and businesses alike.

“The government has worked hard in an incredibly difficult environment to create a capital lifeline to many businesses via the BBLS and CBILS, as well as long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme, but now we would urge that there needs to be even greater support – both via financial and via sustainable growth initiatives.

“Agile companies, which have survived 2020 and provide a product or service which has a genuine medium to long-term solution to a recognised problem, will continue to develop and grow but require capital to do so.”

Frances Haque, chief economist at Santander UK, said: “The MPC’s decision to leave bank rate unchanged at 0.1% was expected this month given rapid rollout of the COVID-19 vaccines, which will help boost confidence and support growth in the UK economy.

“However, the Bank of England remains committed to intervening should the financial markets and the UK economy need additional support measures as we move through 2021.“

By Jessica Nangle

Source: Mortgage Introducer

Discover our Mortgage Broker services.

Marketing No Comments

Bank of England: UK economy ‘likely’ to need further stimulus

Bank of England interest rate-setter Michael Saunders said today that it was “quite likely” that more stimulus will be needed for Britain’s Covid-hit economy in a downbeat speech on the outlook.

“I consider it quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the two per cent target,” Saunders said.

Growth was likely to disappoint relative to the Bank’s forecasts published last month, Saunders said.

He said an ongoing recovery was the result of a “benign window” – the combination of huge government spending and the relaxation of lockdown measures.

“This window may now be closing,” Saunders said, adding that a downside scenario for the economy would be “very costly”.

Saunders said the withdrawal of the government’s furlough scheme at the end of October was likely to lead to a spike in unemployment.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

“Unemployment is likely to rise significantly in coming quarters as the furlough scheme winds down and workforce participation recovers,” he said.

“The scale of the projected rise in unemployment (about 3½ percentage points) is similar to that seen in 2008-11, but it occurs much faster. Indeed, it would be, by some distance, the sharpest rise in unemployment for at least 50 years.

“While there are uncertainties around that forecast, my view is that the picture of a sharp rise in unemployment is – sadly – highly plausible,” he added.

On Wednesday, the Bank’s deputy governor Dave Ramsden and another rate setter, Gertjan Vlieghe, also warned the economy could suffer more damage from the coronavirus crisis than spelt out by the central bank last month.

Many economists expect the Bank to announce a ramping-up of its bond-buying programme in November.

By James Booth

Source: City AM

Marketing No Comments

Sterling set for biggest monthly rise in more than a decade as dollar slides

The pound advanced towards $1.32 on Friday, on track for its biggest monthly rise in more than a decade as a broad-based dollar decline fuelled demand for the British currency.

But concerns of a second wave of infections, a weak economy and growing pressure to strike a Brexit trade deal before a transition period ends in December are prompting investors to become wary of the currency’s prospects in coming months.

Bank of America Merrill Lynch strategists, who have been bearish on the pound, said the rest of 2020 could see weakness in the currency, especially as the period of August through December historically contains four negative months for sterling.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

“The fortunes of the pound will increasingly be driven by the monetary policy stance, the ability of the economy to rebound from the global pandemic, and Brexit negotiations, which are effectively stuck in the mud,” the strategists said.

On Friday, the pound rose 0.5% to $1.3159, its highest level since early March. On a monthly basis, it is up nearly 6%, its biggest rise since May 2009, according to Refinitiv data.

The pound’s gains can be attributed to the dollar’s losses.

The greenback has fallen nearly 5% in July, with most of the drop coming in the last 10 days as new cases of coronavirus surged across several U.S. states and some recent data pointed to an economic recovery losing steam.

British Prime Minister Boris Johnson said on Friday some lockdown easing planned for the whole of England would need to be delayed and the country’s chief medical officer said any further opening up of the economy would raise infection rates.

Concerns over the struggling economy have prompted hedge funds to unwind their bullish bets on the pound in recent weeks while derivatives data signal more weakness ahead.

Reporting by Saikat Chatterjee

Source: UK Reuters

Marketing No Comments

Sterling heads for first weekly win against dollar in four

Sterling headed for its first positive week in four against the dollar on Friday, holding below the $1.25 mark as a week of negotiations between Britain and the European Union ended prematurely, with meetings expected to resume next week.

The pound slipped briefly in morning trading in London, a move one analyst attributed to some spillover of political uncertainty in Europe following the resignation of French prime minister Eduoard Philippe and the appointment of his successor.

By 1509 GMT, the pound was trading flat to the dollar at $1.2464.

It also traded flat against the euro, at 90.16 pence.

Sterling has risen 1.2% against the dollar this month, after losing 2.7% in June.

“The more consolidative tone of the pound is likely related to the fact that it is the worst performing G10 currency on a 1 month view – investors are likely pausing and evaluating new news,” said Jane Foley, head of FX strategy at Rabobank.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

Brexit talks this week between Britain and the EU ended early on Thursday, with a meeting between the chief negotiators on Friday cancelled.

The EU’s chief negotiator, Michel Barnier, on Thursday said serious divergences remained between the two sides after talks this week on their future relationship.

British Prime Minister Boris Johnson said on Friday he was more optimistic than Barnier that a post-Brexit trading deal could be struck, but said Britain could leave the bloc without a comprehensive agreement if needed.

Implied volatility on the pound – as shown by options markets – remains elevated compared with other currencies.

“There are some positive headlines connected with the latest Brexit talks,” Foley said.

UK Chief negotiator David Frost has described the talks as “comprehensive and useful”, she noted, while adding the fact that significant difference remain would keep investors cautious.

The longer the wait for concrete news on Brexit the more likely the pound sterling is to push lower. The huge political uncertainty suggests that volatility is likely to remain higher than other G10 peers, Foley said.

Forecasts of a deeper UK recession relative to other European countries, the possibility of negative interests from the Bank of England and Brexit have all weighed on the pound in recent weeks.

A historic slump across British businesses levelled off last month as some of the economy reopened following an easing of the coronavirus lockdown, a business survey showed.

The IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI) rose to 47.1 from 29.0 in May.

Reporting by Ritvik Carvalho

Source: UK Reuters

Marketing No Comments

Bailey: Bank of England will reverse QE before raising rates

Bank of England governor Andrew Bailey believes the Bank of England must begin reversing quantitative easing before hiking interest rates from record lows.

Bailey said today that a reveral of QE should come before lifting rates from their historic lows of 0.1 per cent, signalling an upending of long-standing Bank of England policy.

Bailey said the time for such action was not now, but that the high level of central bank asset purchases “shouldn’t always be taken for granted”.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

“When the time comes to withdraw monetary stimulus, in my opinion it may be better to consider adjusting the level of reserves first without waiting to raise interest rates on a sustained basis,” Bailey wrote in an article for Bloomberg.

Last week the Bank of England announced a further £100bn of stimulus to take its bond-buying target from £645bn to £745bn for 2020. However, it said the rate of QE would decrease for the rest of the year.

The Bank’s monetary policy committee slashed interest rates to 0.1 per cent back in March to combat coronavirus.

Bailey’s comments today signal a shift away from his predecessor Mark Carney’s strategy.

Carney had said the Bank would raise rates before trying to sell bonds back to the market.

But Bailey said today he did not want high Bank of England purchases of government bonds to become a long-standing scenario.

“Elevated balance sheets could limit the room for manoeuvre in future emergencies,” he said.

The Bank of England has purchased huge amounts of government bonds since the start of the coronavirus crisis.

By Joe Curtis

Source: City AM

Marketing No Comments

We must be ready for further stimulus, says Bank of England’s Andrew Bailey

The Bank of England and other policymakers must be ready to take further action to help the UK’s economy because of the risk of the coronavirus shutdown causing long-term damage, governor Andrew Bailey has said.

“We are still very much in the midst of this,” Bailey told broadcasters today.

His comments come after new data showed the UK’s economic output tumbled over 20 per cent in April, suffering the largest drop since records began in 1997 as the coronavirus lockdown brought many sections of the economy virtually to a halt.

“We hope that will be as small as possible but we have to be ready and ready to take action, not just the Bank of England but more broadly, on what we can do to offset those longer term damaging effects,” Bailey said.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

While the fall in April – when the economy spent a full month under lockdown – was dramatic, the big question was how much long-term damage this would inflict on Britain’s economy, he said.

Before the Open newsletter: Start your day with the City View podcast and key market data

Bailey said the record drop in GDP was close to the central bank’s expectation for the month, and reiterated his view that some early signs of economic recovery have emerged since then.

The Band of England is expected to announce an expansion of at least £100bn in its bond-buying firepower when its Monetary Policy Committee meets next week in order to limit the damage caused to the economy by the Covid-19 pandemic.

The central bank has already spent the bulk of the record £200bn expansion to its asset-buying programme, which was launched in March.

While the BoE has reduced interest rates to an all-time low of 0.1 per cent in a bid to mitigate the economic impact of the virus, it has not been willing to follow other central banks in setting negative rates.

This decision means that the Bank’s main tool for combatting the coronavirus-induced recession is its bond-buying programme.

Speaking earlier this week, Bailey said the recession triggered by the pandemic will be “different” to others.

“If there is any such thing as a normal recession… this one will be different. There will be elements of a faster recovery, because the first stage of the recovery is literally lifting restrictions and allowing people to go out,” Bailey said at a panel hosted by the World Economic Forum.

By Anna Menin

Source: City AM

Marketing No Comments

Sterling holds near $1.27 as UK plans re-opening, short positions increase

Sterling rose against the dollar on Monday, as plans to ease coronavirus lockdowns in the UK and signs the economy may bounce back due to pent-up demand kept the currency just below the $1.27 touched late last week.

Analysts warned, however, that Brexit remains a risk for the pound – which has rallied for seven consecutive days against the dollar – as talks with the European Union fail to make progress.

The pound has risen 2.8% against the dollar this month as several economies re-open from lockdowns, weakening demand for the U.S. currency.

British Prime Minister Boris Johnson is planning to relax rules on outdoor dining and weddings, as well as speeding up government investment plans to limit the economic damage from the coronavirus, newspapers reported on Saturday.

To find out more about how we can assist you with your Mortgage requirements, please click here to get in touch

The Sunday Times said Johnson wanted to relax planning restrictions that stop many pubs, cafes and restaurants from using outside areas, and also to make it legal to hold weddings outside.

The number of British shoppers in early June indicate pent-up demand for shopping in physical stores as the coronavirus lockdown is eased, industry data showed on Monday.

Britain went into lockdown on March 23 to slow the spread of the pandemic, with all retail stores deemed non-essential forced to close.

By 0828 GMT, sterling was up 0.15% against the dollar at $1.2686, just below Friday’s $1.27. It was weaker against the euro by 0.12% at 89.10 pence.

“Sterling-dollar remains anchored around the 200-day moving average of $1.2660/65. But it seems that bar the broader weak dollar and positive risk environment, investors currently lack any major catalyst for the pound to move materially above this key level,” said Viraj Patel, FX and global macro strategist at Arkera.

“We could see the pound tread water around these levels in absence of any further positive catalysts and investors take stock of what will happen next in broader markets – especially ahead of the Fed meeting later this week. However, with Brexit headwinds also coming to the forefront of investors – the risks are mildly tilted to the downside for the pound this week.”

Johnson is willing to accept European Union tariffs on some UK goods in an attempt to win a trade deal and break the deadlock in talks with the EU, the Daily Mail reported. Britain’s chief negotiator, David Frost, had made a new offer, the newspaper said, citing sources.

According to the offer, the UK would accept tariffs on a small number of goods in return for the EU’s dropping its demand that Britain continue to follow EU rules.

Speculators increased their net short position on sterling in the week to last Tuesday, CFTC data showed on Friday.

Reporting by Ritvik Carvalho

Source: UK Reuters