Dr James, 9s:

Hey team, welcome back to another episode of the Dennis who invest podcast with returning face. Although, having said that, it's been ages, hasn't it, sarah? It's been way too long. Returning face mortgage expert Sarah Grace. How are you, sarah?

Sarah, 23s:

Yeah, great Thanks, james and you.

Dr James, 25s:

Absolutely wonderful.

Sarah, 27s:

You've got a bit of a cold, have you?

Dr James, 29s:

I've got a bit of a cold, so apologies in advance. Apologies in advance. So that little disclaimer in there at the beginning of anybody here is going on, I'm going to do my best to mute because when that happens, if it happens, because it's not the most appealing sound, of course, but yeah, side heads up on that one. Anyway, sarah, how have you been since we last spoke? What's fresh? How are you it's been. We did the math the other day, right, and I know the older dodgers. Everybody's like, yeah, time flies and all of that. Everybody says that over and over and over again. But oh, my goodness, it really does, because it's been two years since we last spoke.

Sarah, 1m 5s:

Oh, it's three.

Dr James, 1m 6s:

Yeah, do you know?

Sarah, 1m 8s:

Yeah, we were in the realms of lockdown and COVID, second lockdown, I think, and God knows what. Yeah.

Dr James, 1m 17s:

Wild, wild. Well, you know what? For anybody who hasn't seen that episode, it might be nice if you did a little bit of an intro about yourself, sarah.

Sarah, 1m 25s:

Yes, I've been in the mortgage markets since 1992. I worked with dentists since 2004. And I set up my own show in 2012. So I've been on my own doing my own gig for nearly 12 years.

Dr James, 1m 52s:

And I've been doing some stuff and what, what unique things, what unique challenges to dentists have whenever it comes to mortgages, or what makes them such an interesting niche, do you?

Sarah, 2m 3s:

feel self employed, predominantly self employed. Which? Of all the professionals out there, it's quite unique having everybody typically self employed, you know, because the associate equivalent in the law world will be, you know, a salary or whatever. So that's the, that's the main thing. And then the biggest challenge I would say is accounts. You know they haven't got two years of accounts or they've changed entity from a sole trader to a limited company I'm getting a lot of that at the moment because they're accountants sort of sad to maybe to a limited company. And so so yeah, that can be, that can be challenging, so yeah, Gotcha good stuff, okay, top stuff, well, anyway.

Dr James, 3m 0s:

So this episode is called mortgage market review and we are going to talk about exactly what it says on the tin today, which is to review the mortgage market effectively, because it's been somewhat tumultuous recently, and you know what it'll be really nice to do for anybody who was maybe not necessarily so aware of that fact, maybe if we could just bring them up the speed, sarah.

Sarah, 3m 23s:

Right. So we, the market, was starting to increase rate wise summer last year. So we were on average the fixed rates on offer going up about 1% or half a percent a month from about the month of May through June, july, august. And then we were looking at five year fixed rates at about 3.29 in September. And then Liz trust we all know that story, or if you don't she put the markets into turmoil and a lot of lenders actually went out of the market because it was too volatile, so they were sitting out of the market. So you went to, I think in October there was only something like 2000 mortgage products as opposed to like 20,000. So it was so volatile that lenders just called out of the market. Even a large lender like HSBC paused for two days where they pulled out of the market. So that just shows how volatile it was. And then, sort of November, it started to stabilize when, I suppose, rishi got in and the rates then were like five year fixed. They were 5% plus, even approaching 6%. And then sort of from November through to June, rates were on a downward trend, as in the fixed rates. And then July the inflation news in the US and in the UK were not good and again that created more volatility in the what lenders call how lenders price that fixed rates and that's on the swap rate. Swap rates became very volatile not dissimilar to September when Liz got in, but not quite as bad and then rates peaked again. But we're in that sort of moment at the moment where they're starting to reduce going again and we can. Now we went up to probably a five year fix with a good deposit of around sort of 5.8% and we're now down to about 3.6, something like that. So you know it is going in the right direction. Market is a lot more stable. Inflation news that looks like that's also sort of getting better, and so I'm hoping that we're in a bit more of a stable market again now.

Dr James, 6m 40s:

Good stuff, okay, and if we could just really, really, really break it down. You know that term swap rates. What does that mean?

Sarah, 6m 50s:

Yeah, so how? Lenders because lenders quite often don't lend their own money or what they want to do is they want to hedge against the variable rate, because all of the lending that they do typically is on the variable rate. But they want to offer fixed rates, but they don't necessarily want to take that risk themselves. So what they will do is they'll go to the money market and they will go onto the swap rate market. So anybody can do a good research on GB great British crown swap rates and you can see what the swap rates are. And that's the money market is offering them rates for the lender to swap their variable rate and they will give them fixed rate back in return. So that protects the lender, it gives them security of knowing that whatever happens to the rates, they're okay. So then, whatever they buy that money in, they charge a little margin on top anything back to 1%. But at the moment that margin's are really being squeezed because the market has slowed down and so everybody's fighting for their share of the market. So the margins are squeezed at the moment. And I think you know, although everybody thinks that lenders are the big bad boys, they're in the business to lend money and they want to try and help people as much as possible coming off like 1, 1 or 0.96 rates, going on to rates of like 4%, 5% or even 6%. They want to try and stop them that below as much as possible for their existing borrowers as well. So you know that's the market we're in. So yeah, they will charge their margin on top, which is, you know it can be up to 1%, but you know it's typically around sort of carbon percent. So the swap rates at the moment two year fixed rates are more expensive and that's because the money marketeers are thinking that the two year bank face rate is going to be higher on average than, say, over five years. So you get a better deal on a five year face. At the moment we've probably seen about half a percent or 50 basis points, as they call it, difference between a two year and a five year fixed, which historically two year fixed have always been cheaper than five.

Dr James, 9m 49s:

It's kind of like bonds, then. Really, that's how bonds work as well, which makes sense because it's all borrowing.

Sarah, 9m 56s:

Yes, yes, yeah, exactly.

Dr James, 10m 1s:

OK, brilliant stuff. Thanks so much. Do you know what I'd be really interested to hear? I'd really be interested to hear someone who is in the field and an expert on mortgages talk about how the interplay between the Bank of England base rate and the mortgage borrowing rate, how are those two things connected? Because I know they're not precisely the same thing, but it is known that when the Bank of England base rate fluctuates, so do mortgage rates as well.

Sarah, 10m 28s:

Yeah, so there's only about 20% of lenders, or the whole mortgage market, on variable rate. Because if you're looking at majority of lenders what they call SBR standard variable rate they're anything between seven and a half and nine percent. So that is Bank of England base rate at the moment is 5.25%, so that 2% or more margin that lenders are charging and that's what they're charging on the variable rate. But you know, my clients, it's very unusual. You're set on the lenders SBR unless you're specifically doing it for some reason because you've come off your rate and you're halfway through the same transaction and you don't want to be in early redemption penalties and it's not worth remortgaging for a few months or something like that. So it tends to be very old accounts where you perhaps had your 25-year mortgage if you took it 20 years ago and you've got five years left and you've just not been bothered to do it. But any good mortgage brokers out there will have a list of their rates that are coming up for a new all of their clients and you've sort of managed that before they came off their rates.

Dr James, 12m 11s:

Right, got you, okay, cool. So obviously this is a mortgage market review and you've covered the terminology of the mortgage market from a high level. Let's get into what is presently happening and give it a A crystal ball A crystal ball, biggie Pardon.

Sarah, 12m 30s:

A crystal ball.

Dr James, 12m 31s:

Crystal ball? That's coming. That's definitely coming, because everybody every mortgage broker's favourite question is what are interest rates going to do next? Right, we'll come to that, so I'm interested to know. So what would be your and you might have said this already what would be like the typical fixed rate for two years that you're seeing out there at the minute?

Sarah, 12m 53s:

So it depends. If you've got 40% deposit equity, you've got two years account and you can go. You know your vanilla, so to speak. You can be the rate tarved. Five year fits 4.6 around and then the two year fix. Last week we had a lender that just broke the 5% mark, so you can get just under 5% on the two year fix now. But if you're new to the market, first time buyer, we'd say 10% deposit and then you've got no account. Or you've got, you know pay schedules for less than one year and you've got no account. You know you're looking at rates over 6%.

Dr James, 13m 53s:

Oh, really Wow.

Sarah, 13m 55s:

Yeah, so Scottish widows, which probably a lot of people that are listening to this have had a mortgage with Scottish widows in the past as they were the first lender back in the noughties to bring up using pay schedules for them tests without accounts, and they have their markets of themselves for a very long time on that basis. But over the last, especially over the last two or three years, I've been working with several lenders to bring out pay schedule criteria with lenders and I'm just running a pilot scheme with another lender at the moment, so which that seems to be working well. But yeah, the Scottish widows, unfortunately, are exiting the market on the 17th of November. They're still looking after their existing customers but no new borrowers will be able to go to them. But you know they're priced out of the market anyway. You know they're two year picks, for instance, a 6.99. We've got another lender that will do 6.75, but the pilot scheme that I'm running at the moment we've got 6.29. So you know we're yeah, it depends on deposit is key and where, if you're looking at 90% and you've got two years accounts, you know probably around the sort of 5.8 or something like that.

Dr James, 15m 27s:

Right, okay, and I know that what's about to come out of my mouth is a hard question to answer, but what are you typically saying to people who come to you and say hey, sarah, is now a good time to borrow, is now a good and now a good time to get into the market and get my first home?

Sarah, 15m 45s:

Yeah, like the thing is, is what we are finding for the first time over the last sort of six months or so. We're finding for the first time people are actually having offers accepted below market price. You know the marketed price which you know during COVID and that you know. We have some cases where there was like 50k over the ask in price, you know because the market was so buoyant. So it is becoming more of a biased market again, as in pricing to purchase, but the cost of borrowing is so much more. So you know when is a good time, when is the. I just think that that's down to the individual. If you're comparing it to pay in rent, rent, you know I heard a report last week 2,600 is the average rent per month in London, 1,500 for the rest of the UK on average. So you know if your mortgage payment bearing in mind your mortgage payments is built up of a part interest only and part paying back the capital, you know you will, you are creating more equity in your asset. It's a hard question to ask when. When is like everybody wants to buy at the bottom of the market and felt the top. The trouble is if you only know when the bottom is and the top is what after the event. So so it's if the circumstances are right for you and the cost of the borrowing, so you know, I thought that you might say that.

Dr James, 17m 35s:

however, that is something extremely pertinent on everybody's mind, so I just thought it was good to just air that one out.

Sarah, 17m 41s:

basically, I bought my first property in 1990 and rates were 18% then. And you know, if I hadn't bought back in 1990, I wouldn't have the equity and I wouldn't be able to bought the property that I've got now. So I think you know, the longer you're in the market it doesn't really matter what happens to the prices. You know it's like stock market investments, isn't that you? Just because the market's gone down, you don't come out of the market. You perhaps even bought more then.

Dr James, 18m 21s:

I like it that analogy works, because everybody who listens to this podcast is hopefully investing literally or at least they've learned a few things Wonderful, wonderful, wonderful, Okay so listen thank you for this powerful, impactful, punchy review of the mortgage market. Now I'm going to ask every mortgage broker's favorite question, which we alluded to earlier what's going to happen next with interest rates?

Sarah, 18m 45s:

Yeah, so, like you know, it's my view and there's a lot of economists out there with the similar view. I think that so what we were talking about earlier with with swap rates, and that I think bank based rate will remain. It might even go up a tad to five and a half percent. We might see another, another increase, and then next year they're expecting it to remain very, very static and then it will be 2025 before we start seeing a reduction in the rates. So, yeah, it's, it's. I've just lost my train of thoughts, all right.

Dr James, 19m 32s:

No, it's fine. You said Borgage rates may go up and hover where they are. Yeah 25, maybe go down.

Sarah, 19m 40s:

Yeah, and then go down, and that's why we see in two year fixed rates, as I said before, higher than the five year fixed rates. So the thing is, predictions are just predictions. Nobody expected the markets to have done what they did when we had credit crunch, for example. Then we've had COVID. The problem is is the economists and everybody are predicting, when they're just expecting the economy is perhaps going to go through a bit of a static period over the next year and then hopefully we'll start to see some growth. So all we can do is base our predictions on that. What we can't predict is the one off life time or one off events. So inflation has to come under control, unemployment has to remain low and no sort of God prepared Things going off in the Middle East are more than what they are already Any other worldwide events. So I think that the probably rates. As long as the market remains stable and starts recovering, the interest rates will start to improve further and will get a bit more of a static market. So I think that probably they're the highest they're going to be now. But who knows, who knows.

Dr James, 21m 25s:

I love that, yeah, because it's very important to caveat everything that we just said with the fact that no one can predict this 100%, because if they could predict it, they'd probably be extremely wealthy, wouldn't they as well? Yeah, yeah, and a really nice way of thinking about this is really the economy, and what interest rates do is a manifestation of what's physically happening on the earth right here, right now, at least to a degree, and we know that we can't predict the news. Therefore, we know that we can't predict the economy, which, when someone said that to me for the first time, I was like ah, I get that. Reality is inherently unpredictable and the economy is just simply a barometer of what's happening in the world, at least to a degree. So therefore, it doesn't make sense that we'd ever be able to predict it with any real reliability, which is a really nice way of thinking about it. I thought.

Sarah, 22m 12s:

Yeah, yeah, yeah, absolutely, absolutely. And the thing is, is each individual? The question I get asked all the time is two year, five year, which one should I go for? And it's each individual on their own. Are they risk adverse? Do they like to have the security of knowing what their payments are going to be for the next few months? Could they? Could they stomach raise in interest rates, do they? You know? Are they sort of more on a high risk strategy? They want to go two year bits and on the hope that in two years time the rates on offer will be better than you know, are they going to make some capital overpayment so they'll be on a lower level to value in a couple of years time? You know, all of those things will be very individual.

Dr James, 23m 8s:

Boom Sarah, thank you so much for your time today. If anybody listening wants to find out more about you, what can you find?

Sarah, 23m 15s:

Oh yeah, so we've got a website, wwwsarah-gracecouk, or we can. I'm on the ganttikcom website.

Dr James, 23m 33s:

It's very good.

Sarah, 23m 35s:

Or 8203 63388, is our office number.

Dr James, 23m 41s:

Top stuff, Sarah, listen. Thank you so much once again for your time. I'm sure we'll speak to each other very soon. Let's not be students at this time and leave it flip in three years.

Sarah, 23m 49s:

That was not OK. That is not OK.

Dr James, 23m 52s:

We've got to do something about that, Sarah. Thank you once again. See you very soon.

Sarah, 23m 56s:

Yeah, thanks, james Bye.

Dr James, 23m 58s:

Bye, bye.