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Fixed rate UK international mortgage demand to rise, as regulator confuses

Demand for international sterling fixed rate mortgages is expected to rise amongst overseas buyers of UK property, thinks expatriate mortgage broker after UK Bank of England Governor Mark Carney gave his strongest hint yet that the UK Base Rate could rise this year. The change in direction by the Governor has taken many by surprise, coming as it does several months ahead of most commentator forecasts.

With UK two year buy to let variable interest rates ranging from 4.24% to just over 5% , but two year fixed rate funding available at just 5.14%, the decision looks an easy one for most expatriates, thinks’s Tim Harvey. “For those with a 25% deposit, there is just 0.01% difference between opting for the security of a fixed rate as opposed to chancing the fact that UK Base Rate will not rise within two years. Most people now believe that UK Base Rate will rise within 10 – 14 months, meaning variable rate loans will all be pushed upwards by similar amounts. Faced with this choice, two year fixed rate funding looks extremely attractive at present.”

At the same time, brokers are noting a slowdown in UK mortgage main home purchase applications, as the new Mortgage Market Review rules begin to bite. Under the new regime, banks are now using an affordability led model to agree mortgage loans, rather than salary multipliers, which was a feature of the old system. Yet just this week, as least two major banks have announced caps of four times salary on selected loan applications, following comments from the UK Regulator suggesting additional limits were needed over and above affordability limits. Harvey continues, “We are now seeing confusion in the areas of main home loan applications. Lenders are implementing far stricter checks on affordability and stress testing notional mortgage rates at up to 7%, something which has led to a slowing and reduction of approvals. At the same time, some lenders such as Lloyds and Royal Bank of Scotland, owners of Nat West, have introduced caps of four times salary on some larger loans applications.”

This new dual approach to limiting lending is likely to become more widespread next year, as the Bank of England is given formal powers to be able to instruct banks to implement caps similar to those operated by Lloyds and Nat West at present. International UK mortgages for expatriates hoping to build a buy to let portfolio are unaffected by the majority of these changes, as buy to let loans are not caught by the new rules.

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