A year on since the Mortgage Market Review (MMR) was introduced in April 2014, total mortgage products have risen by 19% (2,123) from 11,416 to 13,539: the highest number available on the market since the 2008 recession.
The figures suggest consumer choice has not been as restricted by MMR as first anticipated. Mortgage products available through intermediaries in particular have risen significantly over the past 12 months: up from 7,942 in April 2014 to 9,309, an increase of 1,367.
In contrast, direct-only products have risen by just 756 over the same period (from 3,474 to 4,230) as lenders increasingly make their products available through mortgage brokers.
Average mortgage rates continue to fall – yet premium for five year fixes widens
Mortgage rates have been falling steadily over the past six months, and April’s Index suggest these are yet to have hit the bottom of the curve.
According to data from Moneyfacts.co.uk, average two year fixed rates fell below 3% to 2.95% for the first time in April: an annual decrease of 70 basis points (bp) since April 2014 (3.65%). Both three and five year fixed rates have never been lower: three year fixed rates fell 69bp annually to 3.28% in April, while five year fixed rates dropped by 51bp to 3.53% over the same period.
However, while all fixed mortgage products have benefited from rate reductions, the premium on five year fixed rates compared with shorter fixed terms has grown significantly over the past year.
|
Average fixed mortgage rates |
April 2015 |
April 2014 |
|
Two year fixed |
2.95% |
3.65% |
|
Three year fixed |
3.28% |
3.97% |
|
Five year fixed |
3.53% |
4.04% |
|
Annual difference in rates (basis points) |
||
|
2 year and 3 year fixed |
33bp |
32bp |
|
3 year and 5 year fixed |
25bp |
7bp |
|
2 year and 5 year fixed |
58bp |
39bp |
In April 2014, the pricing gap between a three and five year fixed rate product was just 7bp – this has now risen by more than three times to 25bp. Similarly, while the difference between a two and five year fixed rate was 39bp in 2014, twelve months later this has risen to 58bp.
Brian Murphy, head of lending at Mortgage Advice Bureau, commented: “Consumers have been benefiting from record low mortgage rates for some time now, and product availability has continued to improve. A low interest rate environment – plus extra initiatives such as stamp duty reform – has certainly helped to make affordability conditions better for consumers, despite the borrowing limits introduced by the Mortgage Market Review.
However, while mortgage products are certainly now more competitively priced, borrowers will find they are paying a greater premium for the security of a five-year fix. With an interest rate rise forecast for 2016, it’s unsurprising that lenders are building in this cushion to longer-term fixed products to avoid under-pricing in the long run.”
Mortgage applications improve annually despite general election
Industry commentators speculated that the general election would create a temporary slowdown in the mortgage market as nervous buyers anticipated a change in government. There was a small slowdown in applications in April, with total cases down by 10% compared to March. However, this was partly attributable to the Easter break at the beginning of the month, and total mortgage applications remained 22% higher year-on-year.
This monthly fall in applications mostly occurred in the struggling remortgage market: remortgage applications fell 17% since March, compared to a fall of just 7% in the purchase market.
Brian Murphy, head of lending at Mortgage Advice Bureau, commented: “It was widely believed that the general election would put a dampener on the housing market: however, this has turned out to be more of a damp squib. Mortgage applications did fall slightly over the month as a whole, but activity after the Easter break increased week-on-week. Applications have also risen by over a fifth compared to April 2014 (the first half of which was exceptionally busy relative to previous years).
Industry forecasts for future growth are moderate but positive. Consumer demand is certainly riding high, but our major concern is that housing supply is running dangerously low. The UK is short of enough suitable properties to support potential buyers’ homeowning aspirations, and a housing strategy that will last beyond the current government is desperately needed.”
