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https://www.mortgagestrategy.co.uk/margin-compression-becoming-a-serious-concern-ami/

 

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Margin compression “becoming a serious concern”: AMI

By Emma Lunn 9th April 2019 11:42 am

The latest Quarterly Economic Bulletin from the Association of Mortgage Intermediaries says margin compression on mortgage deals is becoming a serious concern with too much money chasing too little return.

The trade body says funders are pouring cash into a market they believe is safe, seemingly without taking account of the economic uncertainty facing the UK. It goes on to say that any significant rise in unemployment, coupled with less tolerance for long-term arrears, will “begin to hurt, and fast”.

The report discusses how Britain’s economy is holding up reasonably well given the tide of political uncertainty but points out that high employment and low business investment point to poor and worsening productivity.

AMI says competitive pressures in the market are becoming heightened. The Bank of England noted that 4.4 per cent of mortgages advanced in Q4 had loan-to-value ratios exceeding 90 per cent, compared to 3.8 per cent a year earlier. That is a 15 per cent rise in lending appetite at the higher risk end of the market.

The proportion of high loan-to-income lending (loans greater than four times the value of annual income for a single buyer or greater than three times the annual income for joint buyers) remained at 46.9 per cent in Q4, its highest value since the series began in 2007 Q1.

AMI says margin compression has been commented on a number of times this year. It was notably given as the reason for Magellan Homeloans, AA Mortgages and Secure Trust Bank for stopping all new mortgage lending.

The report says: “Mortgage rates have nearly halved since the financial crisis, according to Moneyfacts data. The average two-year fixed rate home loan has fallen from 4.79 per cent in March 2009 to 2.49 per cent today. Similarly, the average five-year fix has dropped by 2.73 percentage points.

“That’s in spite of the base rate being higher today than it was 10 years ago. There is so little room for lenders to shave any more off price, that there is a notable move to differentiate on criteria. The Bank of England has been warning lenders about scaling up the risk curve for around nine months now, yet criteria appear to be relaxing.”

Several challenger banks are lending to borrowers with previous debt issues while competition for high loan-to-value market share has intensified. There are now 391 mortgage deals available at 95 per cent LTV.

Moneyfacts data also shows the percentage of mortgage products with a standard maximum mortgage term of 40 years has risen from 36 per cent five years ago to 51 per cent today.

The AMI report says: “There is too much money, chasing too little return in today’s market. Funders are pouring cash into a market they believe is safe, seemingly without taking account of the economic uncertainty facing the UK. It appears particularly obtuse to be chasing returns when the downside risks to our housing market are more significant than they have been in some time.”

 

 

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An then there's this https://moneyfacts.co.uk/news/mortgages/mortgage-rates-not-impacted-by-wholesale-costs/

 

 

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Mortgage rates not impacted by wholesale costs

Category: Mortgages
Author: Leanne Macardle
Date: 08/04/2019 

Securing the best mortgage rate
possible is key to ensuring your repayments remain affordable, yet while there are many things that impact providers' pricing decisions, it seems that wholesale costs – one aspect that used to be an essential component of a mortgage rate – are no longer as vital as they once were.

Indeed, according to the latest Moneyfacts UK Mortgage Trends Treasury Report, the average two and five-year fixed mortgage rates fell only marginally in the last month, despite SWAP rates (the rates mortgage providers use to hedge themselves against interest rate fluctuations) falling dramatically.

For example, the average two-year mortgage rate fell by 0.01% to 2.48% this month, while the five-year equivalent fell by the same amount to 2.88%. While any kind of reduction is good news for borrowers, wholesale costs actually fell far more dramatically – the two-year SWAP rate fell by 0.17% in the last month and the five-year rate by 0.24% – which at one time would have signalled a far greater reduction in mortgage rates, too.

At the same time, the level of product change is slowing – as can be seen by the average shelf life of a mortgage product rising in recent months – with providers making fewer changes to their product ranges. This lack of activity, particularly when combined with such minimal rate changes, suggests that mortgage providers are adopting a more 'wait and see' approach amid the current level of economic uncertainty, offering borrowers a measure of stability – at least where mortgage products are concerned.

The table below highlights the latest changes in more detail:

Selection of key mortgage indicators (residential only)

 


Average two-year fixed mortgage rate


Two-year SWAP rate


Average five-year fixed mortgage rate


Five-year SWAP rate


Average two-year tracker mortgage rate


Average shelf life of mortgage products*


Feb-19


2.49%


1.08%


2.90%


1.24%


2.10%


38 days


Mar-19


2.49%


1.12%


2.89%


1.31%


2.09%


42 days


Apr-19


2.48%


0.95%


2.88%


1.07%


2.10%


49 days

* Measurement between the time a product launches and its repricing or withdrawal. Please note: Averages are based on residential mortgage rates only. Source: Moneyfacts Treasury Reports

 

"It is probable that mortgage providers may be stepping back and waiting for greater economic certainty before they return to making strategic changes to their mortgage ranges," said Darren Cook, finance expert at Moneyfacts. "The average shelf life of a mortgage product on our database increased to 49 days this month, seeing a product remain available for 10 days longer than in February this year.

"Further supporting a possible 'wait and see' approach from providers is the lack of movement in the average two and five-year fixed mortgage rates, while the average two-year tracker rate also showed little movement but instead increased by 0.01% to 2.10%. This continues the trend seen in the previous month, with the average rates between February and March also either decreasing by 0.1% or not changing at all.

"More significant changes however can be seen when looking at SWAP rates, which have historically been a reliable indicator in anticipating which direction rates on fixed rate deals may be going. Significant SWAP rate decreases or increases for a prolonged period may indicate that the average two and five-year fixed mortgage rates are likely to follow suit, as has been seen when market speculation is rife of a suggested base rate change."

This could perhaps suggest that mortgage rates are set to fall further, but there's of course no guarantee, with the link between mortgage rates and wholesale costs no longer as strong as it once was. However, the latest data means that borrowers who were themselves holding off on making a decision won't have lost out at rate level, so now could be the time to start checking out the market. Compare the best mortgage rates using our search tool or mortgage calculator, and see if it's time to make a move.

 

 

 

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We are so, so ******ed.

Interest rates should have been at 15-20% or more after 2008.

Now we are going to taste 30+% (assuming the £ even manages to stabilise)

However, the government will not tolerate this and will trash the currency before considering allowing a wealth reset (spenders -> savers)

Buy gold.

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3 hours ago, Locke said:

We are so, so ******ed.

Interest rates should have been at 15-20% or more after 2008.

Now we are going to taste 30+% (assuming the £ even manages to stabilise)

However, the government will not tolerate this and will trash the currency before considering allowing a wealth reset (spenders -> savers) 

Buy gold. 

After the great reset how many ounces of gold will I need to buy a house in the south east?

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9 minutes ago, APerson said:

After the great reset how many ounces of gold will I need to buy a house in the south east?

Good question.

I am with Locke, it would be entertaining to see 30% interest rates but can you imagine the economic carnage that would be happening in the UK if we had rates like that.

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15 minutes ago, APerson said:

After the great reset how many ounces of gold will I need to buy a house in the south east?

About 350

7 minutes ago, dougless said:

it would be entertaining to see 30% interest rates

Ehh, entertaining...more like just.

I'm saying that would be the natural interest rate after the economic malaise the government has built up

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Should and will are two different things.  Even these sweepings from an abortionists  floor will avoid “excessive” rates, for whoever knows they will never taste power again.  Most of us remember “a price worth paying”  or “there’s no money left”.   

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4 hours ago, Locke said:

We are so, so ******ed.

Interest rates should have been at 15-20% or more after 2008.

Now we are going to taste 30+% (assuming the £ even manages to stabilise)

However, the government will not tolerate this and will trash the currency before considering allowing a wealth reset (spenders -> savers)

Buy gold.

Everyone here has been saying house prices will have to fall since 2004 with good logical arguments I broadly agree with. Only they haven't, they've gone up much much more. 15 years so far.

Similarly, can also agree with your logical arguments on interest rates but care to put a year or decade when it will definitely have to happen?

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56 minutes ago, APerson said:

After the great reset how many ounces of gold will I need to buy a house in the south east?

In all seriousness, fewer ounces than you currently need. Probably quite a lot fewer.

11 minutes ago, Freezer? Best place for it said:

Should and will are two different things.  Even these sweepings from an abortionists  floor will avoid “excessive” rates, for whoever knows they will never taste power again.  Most of us remember “a price worth paying”  or “there’s no money left”.   

4 minutes ago, ebull said:

Everyone here has been saying house prices will have to fall since 2004 with good logical arguments I broadly agree with. Only they haven't, they've gone up much much more. 15 years so far.

Yes, I agree here. When I say "should" I mean just that.

The natch here is that the longer and more extreme the distortion away from "should" conditions, the worse the rebound and the more extreme (i.e unjust and/or violent) measures those in power have to take.

6 minutes ago, ebull said:

Similarly, can also agree with your logical arguments on interest rates but care to put a year or decade when it will definitely have to happen?

It feels like this year, possibly next, but I don't think anyone who is honest would try and say for definite. 

This is how the situation is so marvelously shitty for us pleb Joes. We neither have access to the elite engines of wealth, nor can we accurately plan ahead.

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1 minute ago, Freezer? Best place for it said:

It was this I was referring to.  You’re right, we have lived with Emergency Rates for 10 years too long, it won’t end well.

And in Eurozone almost as long but emergency level is more emergency than ours. Interbank is still negative and consumer savings rates often 0.0x %.

Yet over on the Brexit thread remainers are fighting/denying the statement that the euro may go pop.

It also seems to have been forgotten that the EU [including UK] put in place the mechanism for handling the next crisis involving refinancing of banks by emptying all accounts with more than 100k euro. I suspect there are enough who are careless where their money is for this process to allow at least a bit of further can kicking. In the UK there is an alternative with NSandI, in Germany etc. you would need to accept negative interest rates from bonds AFAIK.

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Qe to infinity should lead to inflation. 

Why hasn't it? 

( answer that and we may realise how long they can keep this going)

 

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16 minutes ago, ebull said:

Yet over on the Brexit thread remainers are fighting/denying the statement that the euro may go pop.

I would much prefer to be handcuffed to a radiator, rather than an individual in the final days of passing from a hugely contagious disease.

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1 hour ago, 24gray24 said:

Qe to infinity should lead to inflation. 

Why hasn't it? 

( answer that and we may realise how long they can keep this going)

 

Because QE  has benefited the already wealthy and rather than buying more consumer goods which they are saturated with, they are pumping the stock markets and houses. Ignore assets substitution in CPI and take into account RPI and inflation has been high for years

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2 hours ago, 24gray24 said:

Qe to infinity should lead to inflation. 

Why hasn't it? 

( answer that and we may realise how long they can keep this going)

 

The original QE reserves were created within the banking system and never left it; hyperinflation was therefore impossible. That changed with the advent of TLTRO l & ll (2014, 2016) and the TFS (2016); these were de facto helicopter drops. The huge run up in US stockmarkets that we've seen recently began around the same time as Draghi's first TLTRO operations. Paradoxically, the US has been the chief beneficiary not the EU.

 

Edited by zugzwang

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Maybe when qe is just debt used to inflate selected assets you can get away without inflation on everything else; and similarly in reverse. 

?

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13 hours ago, 24gray24 said:

Qe to infinity should lead to inflation. 

Why hasn't it? 

Eh?

QE caused massive inflation in house prices.

The government decided beforehand not to include house prices in official inflation figures though.

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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