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Funding pressure building towards higher mortgage rates

[ Posted May 27th, 2012 ]

Banks that rely on the wholesale markets for their funding are the most likely to increase their mortgage rates and reduce the amount of lending that they actually make available to potential lenders if the economic turmoil within the eurozone continues to grow.  The turmoil is actually altering the state of new debt and is making the financial situation in all European countries a bit shakier than it has been in the past several years.  In the wake of the 2008 market collapse and the fragile market that ensued, the EU crisis may simply prove to be too much.

After the financial meltdown many of the high street banks in the UK focused on strengthening their funding positions by choose to reduce how much they borrow from the wholesale markets and instead focused on receiving large savings deposits to back lending from their customers.  Despite this shift in practice, a few of the larger high street banks still lend out more annually than they receive in deposits making them the most likely to be forced to increase their best mortgage rates since they are still dependent also on the wholesale markets for lending purposes and will need to pay higher for funding.

A quick look over the high street lenders reveals that Santander and Lloyds Banking Group are the most dependent on the wholesale market with their loan to deposit rates coming in at about 138% and 130% respectively.  On the other hand, other high street lenders such as the RBS and Yorkshire Building Society are in much better shape with almost perfect loan to deposit ratios that sit at 105% and 102% respectively.  This means that the latter are less likely to feel the effects of the wholesale funding pressures since they only rely on the market for a small percentage of loan funds, making them the best candidates for the best mortgage rates.

Already Santander and Lloyds Banking Group have announced that they will reduce the amount of new mortgage lending that they will approve as they look to even up their numbers.  Mark Harris, a mortgage broker from SPF Private Clients, stated that the eurozone crisis is going to continue to affect some of the largest high street banks and is going to force them to reduce their lending practices in an effort to stabilize their fragile positions and avoid a banking meltdown similar to a few years ago.

Buy to let mortgages increase by about a third

[ Posted May 18th, 2012 ]

According to figures from the Council of Mortgage Lenders buy to let mortgages continue to be the product of choice on the mortgage market with a marked increase of almost 32% during just the first quarter of this year.  This has also led to the introduction of many new buy to let mortgage rates across the market for potential property investment as many are deciding to rent instead of purchase homes creating a high demand for the rentals.  The CML also stated that repossessions have finally started to steady marking a decline in the amount of foreclosures that are affecting banks and the market.

This is the third year in a row that the value of different mortgages taken out for buy to let purposes has increased.  Increasing rents and the overall decrease in house prices are making many investors and landlords take a second look at the buy to let market.  Some are even securing commercial mortgage deals with the intent of renting them back out to businesses and organizations that do not want to get tied to a mortgage or cannot get approved for the structure that they need.

Over the first quarter of the year about 32,300 loans with a combined value of about £3.7bn were offered to buy to let investors.  While this is a stunning 32% increase it is still only about a third of the lending that was seen back in 2007 before the mortgage market crashed.  The CML stated that most of the property market is now spoken for by the buy to let sector, and banks seem to be responding to this fact as the best mortgage rates are generally offered to buy to let lenders over other lenders.  Today the CML estimates that about 12.8% of all outstanding mortgages are buy to let mortgages.

While buy to let mortgages are continuing to become more popular, one reason that they may not have reached the same heights as in 2007 is due to the fact that landlords are required to have larger deposits than they did back in 2007.  According to the CML, in 2007 the average LTV was about 85%, whereas today the average LTV is 75%.  Despite this fact, it seems very telling that rental mortgages are still more popular than home mortgages and reflects where the mortgage market is slowly heading.

 
 
 
 
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