UK Mortgage Market affordability challenges
By Paul Brett, managing director, intermediaries at Landbay
Affordability is more important than ever as the UK mortgage market has moved away from a low interest rate environment to levels not seen since before the global financial crisis.
At Landbay, we always seek to push boundaries and want to help landlords achieve their investment goals but more often than not that means being creative. So, our latest product solution will appeal to landlords who can’t decide whether to opt for a short-term or a longer-term fixed rate mortgage.
Our new 5-year Special Edition fixed rate range provides the best of both worlds – because you are not tied in for the full five years. It is standard throughout the mortgage industry for fixed rate products to have early redemption charges (ERCs) but with our latest range you are free to redeem the mortgage after three years with no ERCs.
This gives landlords a chance to review their mortgage in years four and five. If rates go up, they can stick with the 5-year product, but if rates have fallen, they have the option to move to a cheaper product penalty free.
In effect, it’s a type of hybrid mortgage as it sits between a shorter and longer-term fixed rate product. But it also offers a good opportunity for intermediaries to reconnect with their clients three years into the mortgage to review their situation.
Stress testing benefits
There is also an additional affordability element to this 5-year Special Edition fixed rate range because it aids stress testing and more money can be borrowed. The interest cover ratio (ICR) on 5-year fixed rates is calculated at payrate but anything less than five years has a stress test application at 5.5% or 2% above payrate, whichever is higher.
Variable fee structure
Another way we can help landlords raise more money is via our variable interest rate and fee structure. By paying a higher fee, the interest rate is lower and therefore so is the ICR.
We introduced fee variations earlier this year and it caused a bit of a stir in the market but soon other lenders were following us. For some borrowers, higher fees serve a positive purpose as they can often borrow thousands more than they otherwise would be able to.
Our in-house broker portal, which was launched last year, was able to quickly get these products up and running once we had made the decision to remove the ERCs.