News Review: Products
Odds shorten on May Bank Base Rate increase by
Rob McCoy, senior product and communications manager, PMS
The UK’s Monetary Policy Committee is more divided than at any point in its 14- year history. For the first time, the vote in February was split four ways – quite a feat for a nine-person committee. It is easy to see why, with recent economic data sending mixed messages on the appropriate setting for interest rates. On the one hand, inflation
has been rising. Consumer Price Index inflation hit 4.4% in February, more than double the 2% target. The MPC will be worried that a prolonged period of above- target inflation could cause inflation expectations to rise. On the other hand, economic activity has been weaker. Gross Domestic Product growth for Q4 2010 was -0.5% quarter on quarter. Many leading indicators have made a hesitant start to the year. The service, retail and construction sectors are growing, but at relatively subdued rates. Manufacturing is the bright spot of the UK economy with activity at a 10-year high.
Rate rises The March MPC announcement was a close call but rates are on hold for now against the backdrop of surging oil prices and a more hawkish European Central Bank. If, as markets are now expecting, the ECB raises interest rates next month the
MPC will be mindful of the implications for the UK. Other things being
equal sterling could be expected to soften against the euro, exposing the domestic economy to greater imported inflation. Given the rise in oil prices this is likely to exacerbate the MPC’s concerns about the inflation outlook. But balanced against this, a rise in Eurozone interest rates could be expected to dampen UK export prospects to the region and thus weaken the UK growth outlook. The dilemma facing the MPC is not getting any easier - the odds on a rate hike in May have shortened.
Fixed rate bias The choice of product sales has continued to be biased towards fixed rate products (70%) as opposed to tracker or discounted products (30%). The actual product mix is still predominately
towards 2-year deals with in some cases as high as 65% as opposed to longer term products, although just under 10% were on 5-year products. Where clients are taking a tracker product again the 2-year products are still the popular choice in approximately 60% of cases.
“The dilemma facing the MPC is not getting any easier – the odds on a rate hike in May have shortened.”
Our research on buy-
to-let products maintains a balanced split between fixed rates and tracker rates with a 50% split. There also seems to be no change in the term of products being recommended with the overwhelming choice still
(decrease) on previous
FTB Purchase
Remortgage BTL
BTL Remortgage Total
Direct 839
910 886 54 60
2749 Source: TrigoldCrystal 09/03/11 products Residential
(decrease) on previous
Term 5 years +
0-3 years 2944 3-5 years 1929 1094
1570 578 258
Increase
(decrease) on previous
721 318 144
404 123 37
Increase BTL
(decrease) on previous
124 15 4
217 53 50
Increase
(decrease) on previous
Fixed month Tracker month Fixed month Tracker month 478 382 117
5
10 10
Source: TrigoldCrystal 09/03/11 products 14 MOrTGaGE InTrODUCEr APRIL 2011 Increase
month 98
123 115 3
-1
Intermediary 2114
3317 3465 784 834
10514 Increase for 2-year products or less.
Road to recovery Last month I posed the question is the mortgage market beginning to fight back? I think we have seen in the last few weeks that it is.
a number of lenders are looking at higher loan to value products specifically to drive the purchase and first-time buyer market, including Skipton (95% and 90%), northern rock (90%), natwest (90%) and abbey (90%).
Whilst some of these have
been through restricted distribution channels it is encouraging to see them happening at all. They will no doubt provide a learning experience for lenders’ risk teams and stretch their credit scoring systems, which since the end of 2007 have been influencing the pricing and structure of their product range.
The product information below was the number of products as displayed on TrigoldCrystal’s prospector system and includes any broker exclusives via distributors/networks as well as direct products from those lenders who supply them to TrigoldCrystal.
(decrease) on previous
month 274
325 355 76 75
Total 2953
4227 4351 838 894
13263 Increase
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