Archive for July, 2010

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House Prices Edge Down As Economy Picks Up

Friday, July 30th, 2010

House prices fell slightly in July, according to latest figures from the Nationwide. The society reports that the price of a typical UK property dropped by 0.5% – the first monthly fall since February. However, this still means that annual property price inflation (the increase since July 2009) is running at 6.6%.

Downward pressure on prices reflects a shift from unusual conditions last year, which forced prices up. Then, buyers found themselves chasing a small pool of properties as developers kept new schemes under wraps until better economic times, while homeowners and investors also sat tight.

Now large numbers of properties are coming onto the market, with the abolition of Home Information Packs being one encouraging factor. But despite record low interest rates, buyers are being held back by continued uncertainty about job prospects and conditions in some areas of the mortgage market.

In that climate, last week’s figures showing that the economy grew with surprising speed in April-June are particularly welcome. A recovering economy, plus the continued low interest rates foreseen by Bank of England Governor Mervyn King, would be the best possible combination for the property and mortgage markets.

Given today’s conditions, it could well be worth approaching a mortgage broker in order to review the way your home is financed. There are some highly competitive mortgage and remortgage deals out there – and a reputable broker like Go Remortgage can provide valuable assistance in finding the one best suited to your personal needs.

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Interest Rates: King Keeps Foot Down

Thursday, July 29th, 2010

Bank of England Governor Mervyn King has poured cold water on suggestions that interest rates will need to rise soon. Speaking to MPs yesterday, he also cautioned against reading too much into recent figures indicating that Britain’s economy is recovering more rapidly than expected.

Last week’s figures showing that the economy grew by 1.1% in the second quarter of 2010 produced a flurry of speculation that rate rises were on the way. And, with inflation above target, mortgage borrowers have been warned frequently in recent months that rates are set to shift from their historic lows.

But Mr King indicated that there were a number of obstacles on the economic road ahead, so that it was too early to “ease off on the accelerator” by raising rates. He highlighted international problems which could impact the UK, along with weaknesses in the financial sector. The Governor also suggested that an eventual rate rise would be a positive move, as it would show that “normal” conditions had returned.

Economists were quick to interpret Mr King’s remarks as a sign that interest rates are set to stay low – even given a rise at some point. They also predict that government spending cuts will stem growth and inflation, though Mr King said the measures would not by themselves push the UK back into recession.

The Governor also applauded some of the effects of low interest rates on the housing market, with repossessions and defaults at significantly lower levels than in the US. Recent Bank of England figures also show that rates on popular mortgage deals fell consistently from last September to May, with some dropping to record lows.

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Mortgage Borrowers: The Choice Is Yours

Wednesday, July 28th, 2010

If you’re thinking of buying a property or of remortgaging your home, you could be forgiven for feeling as if you’re being pulled in different directions at the moment. On the one hand newspaper headlines proclaim that it’s “Time to fix”, while others urge us to “Go for a tracker.”

Fixed rate deals offer the security of knowing how much your mortgage will cost for a predetermined period: two, five, or even ten years. You may not get the lowest possible interest rate now, but you will be guarding against potential rate increases and giving yourself the opportunity to budget with certainty.

With a tracker deal, the interest rate you pay on your mortgage is linked to another rate – typically the Bank of England’s base rate. Your rate is set as a particular margin above the Bank’s, and rises or falls with it. Many borrowers have seen their mortgage payments fall as the Bank lowered interest rates. Others, meanwhile, stuck with their lender’s standard variable rate (SVR). These, applicable when a borrower is not signed up to a particular deal, also benefited from the Bank’s low interest-rate policy.

The mortgage dilemma exists because of conflicting views on the future direction of interest rates. The forecast from Ernst & Young’s ITEM Club that the Bank’s base rate will stay at 0.5% until the end of 2013 could encourage borrowers to choose a tracker or variable rate. But it’s worth noting that their prediction depends on the deep spending cuts planned by the government actually biting, and slowing the economy. Those who take a rosier view of the immediate economic future foresee rate rises next year – and that judgment fuels demand for fixed-rate deals.

The good news is that both sorts of deal have much to offer, particularly as current interest rates make them eminently affordable by historical standards. For many, the issue will be finding the right balance between the loan and the value of the property – or, in the case of first time buyers, finding a deposit. Your choice of mortgage or remortgage deal will also depend on your personal outlook and priorities – and the help of a reputable broker can be invaluable in researching the options, so you can make an informed choice.

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Low Interest Rates: Here To Stay?

Tuesday, July 27th, 2010

Mortgage borrowers could enjoy low interest rates for years to come, according to a respected forecasting group. Ernst & Young’s Item Club says Bank of England base rate could stay at its current historic low until 2014, with 0.5% becoming the “new normal”.

Their reasoning is that government spending cuts will slow the economy and push down inflation – so interest rates will have to be kept low to avoid deflation, or falling prices.

This view is at odds with those expressed by City forecasters, who predict rate rises next year – though most foresee a gradual shift rather than a dramatic hike. Meanwhile, Monetary Policy Committee member Andrew Sentance, has already voted in favour of an increase, from 0.5 to 0.75 %. Dr Sentance thinks that inflation is too high – and that the recovery is established, with latest growth figures seeming to back up this view.

But inflation has fallen recently, and the Item Club expects it to continue on that path, albeit with a temporary boost from the planned VAT rise. They expect spare capacity – underemployed workers and underused equipment – to keep prices and wages down.

Many who are looking to buy or remortgage their homes will be looking for the best of both worlds. Low interest rates mean that, as a proportion of homeowners’ incomes, the affordability of mortgages is excellent, historically speaking. And there are highly competitive deals on offer. Yet positive news on the economy would boost mortgage availability and the property market – not to mention job prospects.

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Lend More, Banks Told

Monday, July 26th, 2010

There’s a growing chorus of voices being raised urging banks to lend more to homeowners and businesses. But the question is how to get them to do it.

Business Secretary Vince Cable is concerned that the banks’ reluctance to lend is having a damaging effect on business, and yesterday signalled that he is ready to employ a variety of “carrots and sticks” to persuade them to do so.

On the mortgage front, June lending figures from the British Bankers’ Association (BBA) paint a mixed picture. According to the figures, net mortgage lending (after repayments and redemptions have been taken into account) fell in June to £2.1 billion, down from £2.5 billion in May. However, compared with the level of lending in June last year, there has been a 4.4% increase.

Meanwhile, the Association of Mortgage Intermediaries (AMI) is calling for “a practical solution” to ensure a sustainable mortgage market. AMI Director Robert Sinclair said that major banks faced challenges in funding mortgages. One factor is the fact that the government’s special liquidity scheme – help given to major banks in the wake of the credit crunch – reaches its repayment phase early next year.

In this climate, some of the proposals from the FSA for rules to restrict mortgage lending seem to many in the industry ill-timed, to say the least – with the prospect, for example, that lenders will be unable to fast-track the loans of trusted borrowers.

A more positive sign is the news that the UK economy is growing faster than thought. If the clearer policy direction set out in the Budget, can be combined with a more robust recovery, then that’s bound to boost the confidence of lenders – and their willingness to lend.

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Mortgage Deals Could Offset Higher Rates

Monday, July 26th, 2010

Expectations of rising interest rates mean that more borrowers are opting for fixed- rate deals, according to leading brokers. One calculates that in June 72% of home loan deals were on a fixed-rate basis, as against 53% in January. It’s a trend which looks set to continue, as borrowers aim to shield themselves from possible rate increases in future.

Improved retail sales figures and upbeat news on economic growth will fuel speculation that rates could rise sooner than previously thought. Bank of England Base Rate has held at an historic low of 0.5% for sixteen months, but one member of the Bank’s Monetary Policy Committee (MPC) has now voted twice for a small rise in rates to counter above target inflation, according to minutes of the MPC’s last meeting. Other members have previously argued that the recovery is too fragile to risk a rise.

Some borrowers have been making overpayments on their mortgage loans. But leading brokers warn that they could be disadvantaged should they find themselves wanting to borrow more when rates rise.

One way round this problem is an offset mortgage. With an offset, savings held with the lender are set against the mortgage loan, so that interest charges on the mortgage are reduced. By adding to the savings, you can effectively overpay the mortgage and decrease the mortgage term. Yet your cash remains accessible if you need it.

Another advantage is that as the borrower effectively does not receive the interest on their savings, there is no tax to pay on it – a particular plus for higher rate tax payers.

With mortgage interest payments calculated by the Council of Mortgage Lenders to be at their most affordable in 35 years, there are also positive incentives to consider a new mortgage deal now.

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Growth Could Boost Mortgage Market

Monday, July 26th, 2010

Britain’s economy has bounced back – and that has to be good for the mortgage market. Growth was estimated at 1.1% for April to June, almost double the estimate of City economists. Leading the charge was the construction sector – which grew by no less than 6.6%, its strongest performance in decades. The figures are subject to revision, but that’s usually meant in an upward direction recently.

It could be that we’re seeing a more robust recovery than thought, and that the economy will better withstand the Chancellor’s harsh medicine – spending cuts and tax rises. More of us will hang onto our jobs, and increased tax revenues will help Mr Osborne bring down the deficit.

All this should help the property and mortgage markets – with fewer facing arrears and repossessions, for example. The financial position of lenders will improve, so that they will feel able to lend with more confidence, and in time offer a greater range of deals – at higher loan-to-value ratios for instance. Fears of a collapse in property prices with borrowers falling into negative equity should recede.

But here’s another thought for homeowners. The startling growth figures will encourage those, like Dr Andrew Sentence, one of the Bank of England’s rate-setters, who’ve been arguing for interest rates to rise sooner rather than later. As the economy grows, higher inflation becomes more likely, and the need to keep rates at rock bottom to avoid recession disappears. If that trend continues, more borrowers will consider fixed-rate deals, and remortgaging to avoid hikes in standard variable rates.

One quarter’s growth figures don’t make an economic summer. Many caution that spending cuts could still set back the recovery. But the news on growth is welcome nonetheless.

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Mortgage Markets Takes Knocks

Friday, July 23rd, 2010

The mortgage market has taken a few knocks recently. But the situation is finely balanced, with opportunities as well as challenges for borrowers. And in that climate, a reputable mortgage broker with wide experience of the market, such as Go Remortgage, can be a great help.

The latest Bank of England Quarterly Survey illustrates the finely balanced situation. Their figures show some growth in mortgage lending, with the net flow from all UK lenders increasing in May by £1.2 billion. There was a slight decline in overall mortgage lending in June – but the Bank also reports that a majority of lenders reported a rise in secured credit for the quarter as a whole. Many expect trickier conditions ahead, however.

Meanwhile the industry is facing some discouraging headlines. One story is confined to two lenders the Clydesdale and Yorkshire Banks, both subsidiaries of Australia-based NAB. As has been widely reported, due to a miscalculation by the lenders, some customers have been underpaying on their mortgages – and now they’re faced with making up the shortfall. The affair is complex: some will have been paying too much interest as their balances have failed to reduce as they should. Meanwhile, the lenders are reported to be offering compensation. Experts have said that customers should think carefully before accepting this, and urged them to keep up their repayments to safeguard their position.

The FSA’s proposals for new rules on mortgage lending are also drawing fire. The financial watchdog stands accused of wanting to reduce the size of the mortgage market and gain more control. Head of mortgage strategy at Nationwide, Andrew Baddeley-Chappell, also points out that you can’t create a risk-free market.

Amid all the controversy, it’s easy to lose sight of the fundamentals: that lower interest rates and highly competitive deals offer mortgage and remortgage borrowers some great opportunities – if you know where to look.

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“Cheaper To Buy Than Rent”

Thursday, July 22nd, 2010

Buying a property is cheaper than renting in most of the UK, according to a study. Property information site Zoopla compared rents on properties in 50 locations with average mortgage payments on equivalent properties. Their research showed that a mortgage cost an average of 8% less in the 74% of cases where it was the cheaper option.

Mortgage borrowers in Dundee apparently enjoy the biggest advantage. There a two-bed flat typically costs £530 a month in rent, as against an average mortgage payment of some £368 – while the average purchase price of a this type of property is just £88,263.

Even in London, where property prices can look eye watering from elsewhere in the country, there’s said to be a cash advantage to buying. The cost of a two-bed flat averages £446,345, while the monthly rent would be £2155.

In the minority of areas where rents are lower than mortgage payments, shortage of supply in the number of properties, along with a surplus in buy-to-let homes, is said to be a factor. But as we’ve reported, the shortages which drove up prices in 2009 and the early part of this year are vanishing, with more homes coming onto the market.

Meanwhile mortgages have become increasingly affordable, with interest payments accounting for the lowest proportion of homeowners’ income in 35 years, according to the Council of Mortgage Lenders.

Another important point is that – unlike with renting – there is the potential for rising property values to yield a tax-free capital gain on your home over time. And ultimately of course, as a mortgage borrower, you can become the outright owner of your home. Falls in interest rates mean not only that borrowing to buy can be relatively affordable, but also that remortgaging to get a better deal, or fund home improvements, can make financial sense.

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Boost To Mortgage Lending

Wednesday, July 21st, 2010

Latest figures paint a more positive picture of the mortgage market, with news that lending rose by 15% in June. The Council of Mortgage Lenders (CML), estimates that mortgage lending increased from £11.4 billion in May to £13.1 billion last month. However, the CML also suggests that the figures represent a seasonal boost – the long-term trend looks flat, with lending for the first six months of the year being comparable to that for the first half of 2009 at £65 billion.

CML economist Paul Samter notes that following the abolition of Home Information Packs more properties are coming onto the market. While this is helping to stabilize prices, he argues, access to mortgage funds is also having an impact: “Transactions are subdued and likely to remains so while access to credit remains constrained.”

Mr Samter also echoed the views of leading brokers on latest ideas from the FSA. It’s suggested that restrictions on lending as proposed by the financial watchdog could make it harder for legitimate borrowers to obtain mortgages – at a time when the housing market is being affected by spending cuts and other economic pressures.

Remortgages accounted for about 4 in10 of deals taken on in June. Uncertainty about interest rates is making borrowers cautious about a switch, with some waiting for a change in rates – or a clear signal that one is on the way. Yet recent reports have shown that mortgages are at their most affordable in decades, and that many on their lender’s standard variable rate could save money by opting for a new fixed-rate or tracker deal. On that basis, industry insiders say that growing numbers of borrowers would be better off moving their loan now.

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