As the Government works to put in place measures to protect both the health and the economy of the UK, the measures announced are evolving rapidly. Since our last update, here is an overview of some of the changes which have come out in the previous few days.
On 19th March, the MPC reduced Bank of England Base Rate to 0.1% - the lowest level it has been in history. The MPC decided to cut interest rates again in a bid to support the UK economy in the face of the coronavirus pandemic. It also announced that the Bank of England would increase its holdings of UK government and corporate bonds by £200bn.
Borrowers whose existing mortgages track the Bank of England Base Rate are likely to benefit from a reduction on their mortgage interest, subject to any caps/floors - which are the level of interest rate which the tracker cannot fall below.
It's easy to assume (and often assumed) that a cut in interest rates will lead to a similar drop in mortgage rates, however this is not strictly true. Lenders mortgage rates and pricing may be linked to BBR, but they could be based on money market rates, such as SWAP rates and LIBOR. So unless your mortgage is a tracker mortgage which is linked to BRR, a drop in Base Rate will not automatically mean a reduction in your mortgage rate.
Money market rates are very sensitive, and so a predicted drop in Base Rate will have, in part, already been factored into current pricing.
Over the last week, we have seen several lenders amend their pricing with only a few making minor reductions, which did not see a comparable reduction to the interest rate cut. We have also seen some lenders increase their pricing and reducing their lending criteria, which will be driven by the turbulence in the money markets. We expect to see more rate increases over the coming days.
Over the last 24 hours, we have seen many lenders scale back on their lending criteria. The changes have been mainly centred on Loan to Values, with lenders removing their 80% LTV product range but keeping their 75% LTV and below products. Some lenders have been tempering their lending policy; for example, they will no longer accept first-time landlords or holiday lets. While these changes are likely to be temporary during this period of volatility, we expect to see more lenders follow suit over the coming days.
On Wednesday 18th March, the Prime Minister said that the Government would be bringing in legislation to protect renters from no-fault evictions, which was a welcome announcement. Still, it left many wondering whether this measure would cover buy to let landlords. Subsequently, Housing Secretary, Robert Jenrick has announced that the changes will be brought to protect renters and landlords.
As part of these measures, the Government has suspended evictions for three months and extended the three-month mortgage payment holiday to cover landlords. Following the announcements, we have reached out to our lender contacts, and so far, only two lenders have confirmed that they will be making the three month payment holiday available on buy to lets. However, all lenders have advised that they will be ready to support their landlord borrowers if they are facing financial difficulties where a tenant has not paid their rent because of coronavirus. We will be reviewing this regularly and updating our website on each lender’s stance, plus their contact details.