Rapidly rising interest rates have left buyers struggling to find good mortgage deals, with hundreds of products being pulled from the market. According to data from Moneyfacts, the average fixed-rate residential deal has now passed 4% for the first time since February 2013. To make matters worse, a total of 269 residential mortgage products have been withdrawn since the Bank of England’s (BoE) decision to increases the base rate by 0.5%

Meanwhile more than 1,100 buy-to-let (BTL) products were withdrawn in June and July as lenders sought to streamline their range ahead of the expected rate hike, while an additional 150 residential mortgage products were also pulled from the market in July.

“The average shelf-life of a mortgage product had sunk to a record low of just 17 days at the start of this month,” says Moneyfacts finance expert Eleanor Williams. “In the aftermath of another base rate increase since then, providers are continuing to react with further revision of their offerings.

“We have seen lenders withdraw parts of, or entire product ranges, with a number citing the pause in lending being due to unprecedented demand.”

Vikki Jefferies, Proposition Director at PRIMIS Mortgage Network, says it is hard to predict whether we will see the number of products on the market fall further. She adds, “We’ve seen the market adapting to the current economic environment – in particular, there has been a higher concentration in key sectors such as 60-70% LTVs. This reflects the high levels of remortgaging and refinancing we’ve seen in the market recently, with many homeowners trying to lock in the best rates available to them.”

We’ve seen the market adapting to the current economic environment – in particular, there has been a higher concentration in key sectors such as 60-70% LTVs. Vikki Jefferie,s PRIMIS Mortgage Network.

Tougher times ahead?

So does this signify tougher times ahead for anyone looking to mortgage or remortgage a property? Are we likely to see more stringent affordability tests? Richard Rowntree, Managing Director of Mortgages at specialist BTL lender Paragon, doesn’t think it’s cause for panic. “We’ve seen a streamlining of lenders’ portfolio range and I guess that is to allow agility in terms of having to move quickly because of the volatility in the market, rather than pulling products because they don’t want to lend,” he says.

He is expecting BoE rates to rise to about 3%, and come back down to 2.5% once inflation is under control. Does this mean that borrowers with fixed-rate deals ending in the next few months are going to suffer? “I wouldn’t necessarily say that,” says Rowntree. “They need to get organised and look at this now. We are mindful of this, so for existing customers we have extended the period they can book their new fixed rates from three months to six months.

“We were the first specialist lender to do that, because we could sense the uncertainty over where rates were going to go.

“The good news for landlords is that when you come to renew that in five years’ time, you are likely get a cheaper rate.”

Jefferies at PRIMIS confirms that other lenders are, “actively thinking about affordability by opening up product transfers two months earlier – a change which has been welcomed by buyers as they are able to lock in rates ahead of future interest rises.”

She says another “positive development” is the rise of increased offer periods by lenders as a result of housing transactions taking longer to process.

Volatile market

Over at Together, Sean Williams, Head of the Professional Sector, agrees there is a lot of volatility in the mortgage market at the moment. “We have been seeing a lot of movement in the market right now, with many lenders increasing rates, removing products or holding rates to win market share – all dependent on their own strategic aims and level of capital they have to deploy,” he says. “In the BTL market, the most popular product continues to be five-year, fixed-rate mortgages, as it has been for a few years now, thanks to a significant demand for remortgages from 2017 fixed rate products maturing. Similarly, the residential owner-occupied sector has seen a shift towards longer fixed-term rates as customers seek long-term certainty of their outgoings.”

We have been seeing a lot of movement in the market right now, with many lenders increasing rates, removing products or holding rates to win market share. Sean Williams, Together.

Stress testing

Williams believes that in-house stress testing will get tougher, although the regulatory burden isn’t as severe for BTL as for residential mortgages. With ironic timing, despite the cost-of-living crisis, the stress tests on the latter have just been eased – the ability to withstand a 3% rise in interest rates has been removed.

“Whilst stress testing may no longer be required by regulators, many lenders may still see it as prudent to continue doing this.

Additionally, they may also introduce tougher affordability criteria and reduce the income multiples they insist on,” he warns. “Additionally, although the new rate rises encourage more consumers to save, those looking to borrow may be more cautious. Even with the option for lenders not to exercise affordability stress testing, higher rates coupled with the cost-of-living squeeze is likely to slow down purchase transactions as households await a set of new challenges in the autumn, when energy prices are set to soar to an all-time high.

“Despite challenging times ahead, there will always be a need for specialist lenders such as Together, and we are in an excellent position to weather any financial storms and continue to help customers who may be underserved by mainstream lenders.”

Affordability is the problem

Paragon’s Richard Rowntree doesn’t believe the removal of the residential 3% stress test will make much difference, but does see things getting tougher. “From a bank’s perspective they almost have two tests that do the same thing – they limit the amount of business you can write over four and a half times loan to income; the 3% was an additional test to that,” he explains.

In a complex market, it is vitally important that individuals seek a mortgage, secure the support of a reputable mortgage adviser who can help them find the best solution. Richard Rowntree, Paragon.

He says Paragon is at the “prudent end of the market” when it comes to affordability and adds a buffer to the regulatory requirement. “What we want to ensure is a future affordability test to make sure that if you don’t switch to a new product or remortgage away, that you can still afford this based on a reversion rate [when a fix ends], and clearly where SVRs are increasing that’s becoming an increasingly difficult test to pass for some landlords.”

He adds, however, that for customers not taking any additional lending, there isn’t a requirement to reassess income when a fixed-rate deal ends. “If you are doing pound-for- pound remortgaging or switching, there are no barriers.”

When it comes to where rates might go in future, Jefferies at PRIMIS says there are a number of factors which will come into play. “These include volatility in swap market rates, broader economic factors and the current rate of inflation. Therefore, in a complex market, it is vitally important that individuals seek a mortgage, secure the support of a reputable mortgage adviser who can help them find the best solution for their individual circumstances.”

Look to brokers

Agents with in-house brokers will undoubtedly find it easier to source mortgages for buyers in a tight market with a diminishing number of products and tougher affordability tests. That’s something that will become much more critical as the property boom subsides and the cost-of-living crisis really begins to bite.

UPSTIX–THE CHAIN-BREAKER

It’s an all-too familiar scenario. There are half a dozen properties in a chain, one falls through and the sale you’ve spent weeks getting to the line is under threat. You know only too well there’s a strong chance it could fall through, and you will have to wait another 12-plus weeks for a sale, also probably in a vulnerable chain.

There is an alternative solution to putting it back on the open market, however. Meet Upstix, a company that aims to mend broken chains by stepping into the breach and buying the affected property for cash. It aims to buy at a discount on a fair valuation and can complete the deal in seven days if necessary –though it says most vendors don’t want to move quite so fast!

Launched in December last year, it has now bought more than 100 properties –including 16 from one housebuilder in June. Upstix–which has £250m funding behind it –doesn’t hold the properties it buys, but rather aims to turn them round as quickly as possible, and will put them back on the market as soon as contracts are exchanged. Admittedly it’s not the first such solution in the market – there are other such as WeBuyAnyHouse.com and HBB Solutions.

BOLD APPROACH

But although it will buy individual properties, Upstixhas taken a bold new approach to broken chains. Its new ‘Chainbreak’ product, which has just been launched with a handful of select agents, aims to encourage other buyers in the chain to make up the shortfall in the ‘broken’ property’s discounted valuation.

“They could take our offer and the chain would move on. If, however, the numbers are tight, our tool asks all the agents in the chain for contribution to make up for our offer, which is typically a little bit lower than the previous one they had,” explains Upstix chief operating officer Phil Tennant.

Our offers are absolutely likely to be less than an open-market offer.

“Sellers have several choices – go back on the market and start from square one, and for some people that may be absolutely the right choice, but this is an alternative to that, which is to take a slightly lower offer today, spread the pain across the rest of the chain and move home as you intended to do.

“There might be circumstances where speed might be more important to one or more individuals in the chain than extracting the last penny out of it.”

Tennant says Upstix is unlikely to equal the offer already received by a vendor, but adds, “It hasn’t taken 16 weeks to get it. There is a convenience factor there. Our offers are absolutely likely to be less than an open-market offer. However, you have to take into account the fact that there’s that uncertainty, you have to pay a mortgage in the extra period of selling, and the potential for work after a survey… We can buy it quickly. ”For some vendors, that could make the difference between buying their dream home or losing it. It’s certainly a useful tool in an estate agent’s armoury.