Has a turning point been reached in the mortgage market?

It might seem a somewhat odd thing to say – and I appreciate these sorts of comments can often end up being made to look somewhat foolish – but even in a month which saw another increase to Bank Base Rate (BBR), it feels like something of a turning point has been reached and we are starting to see a greater level of stability and certainty in the mortgage market.

Certainly, in recent days at least, lenders appear to be responding to that stability/certainty, and utilising falls in swap rates in order to offer more keenly-priced mortgages, at least when it comes to lower LTVs.

In the space we work in – higher LTV mortgages – things are a little different, as I’ll outline below, but in terms of mortgage product choice we appear to have bounced back off the bottom and I have a greater degree of confidence now that we’ll see more lenders looking at their high LTV product offerings in terms of how they can expand them.

Each month, I use the latest Nationwide average house price figure to look at the range of mortgages available to those who have a 5% deposit to put down, and – certainly from a product numbers point of view – August appears to a much healthier environment than just a month ago.

Last month, product choice numbered just 114, however a month on, that has jumped by almost a quarter and – at the time of writing – there were 143 95% LTV products available, split between 127 fixed-rates and 16 trackers/discounts/variables.

You might be interested to note that while fixes increased from 95 last month, the number of variable deals actually dropped from 19, and it’s clear lenders are targeting most of their higher LTV lending resource at fixes, no doubt because they want/need that certainty in order to be able to offer these products over the longer term.

Again, it will probably not be surprising to you to learn that the most competitive fixes are five-year deals, and we have seen an increase in ‘best buy’ rates over the month, even as swaps have begun to fall again.

Two months ago you could have picked up a 4.85% five-year fix; last month it was 5.44%, but now the best rate is 5.82% from the Cumberland Building Society, although it is also positive to see one of our biggest lenders, Halifax, also offering a 5.87% five-year fix.

Shorter-term deals, namely two-year fixes, are markedly more expensive with the most competitive current rate from the Leeds Building Society with its 6.34% product.

The increase in rates is also obvious in the variable space. Last month you could have accessed a lifetime discount under 5%, but now that rate is 5.4% from the same lender, the Vernon Building Society, however the Beverley Building Society does have a three-year discount product, currently at 5.09%.

There is no big mystery around these current prices and their direction of travel. Inflation, while having fallen this month compared to last, is still incredibly high and the Bank of England still feels it has little option but to keep on its rate-hiking path in order to tackle this.

Whether you believe this is the right course of action or not seems a somewhat moot point, because this feels like the only show in town anyway. Which leads me to believe that it’s a policy the MPC will continue to enact, certainly through the rest of 2023.

However, this doesn’t necessarily mean an inexorably rise in mortgage product rates either. We’ve seen many lenders making cuts in recent days, and while – as shown above – this hasn’t necessarily made its way into the higher LTV sector yet, I would be surprised if we don’t see some lenders looking to cut rates in this area, certainly before the end of the year.

Overall, the high LTV sector does feel like a much more positive environment now than last month – even with the higher rates. Product numbers appeared to be only going one way but that has been reversed, and we are not too far off the 150 products we had in May – something I didn’t think I’d be able to say this time last month.

As always, the building society sector continues to do much of the heavy lifting in the 95% LTV space, but it is also positive to see bigger lenders appearing near the top of the ‘best buy’ tables, not least because their funding lines for higher LTV products will dwarf those of many other, more regionally-focused lenders.

In a purchase market which could hardly be said to be going at ‘full pelt’ there is a lot of reliance on first-time buyers, who even with higher rates making affordability challenging, seem much more inclined to buy now, particularly as house prices have dipped over the last 12 months.

It’s clearly vitally important that low-deposit mortgage options remain plentiful, particularly for those who don’t have a Bank of Mum & Dad to access for financial help. The job of helping new purchasers onto the ladder, often falls to advisers, and the more options they can have to make this happen, the better for the consumer and the market as a whole.