Mortgage Market Comment by TMM


Market Comment

March 2013.

Mortgage Market Update.

Having just suffered a long, cold start to 2013, are we about to see our economy spring forward with the seasons, or will the weather and economy remain unwelcoming?

The UK economy contracted in the final three months of 2012, figures from the Office for National Statistics (ONS) have shown. The economy shrank by 0.3% in the quarter, according to official gross domestic product figures (GDP), which measure the value of everything produced in the country. The fall in output was largely due to a drop in mining and quarrying, after maintenance delays at the UK’s largest North Sea oil field, the ONS said.

Peter Spencer, chief economic adviser to the Ernst & Young Item Club, a forecasting group, believes the UK is “sliding towards” a triple dip, and that the bad weather will be the deciding factor. “This weather is significant enough to have economic effects,” he said. “If the fourth-quarter figures are negative, and if this very bad weather lasts, then the first quarter will also be negative. We will end up with a triple dip.”

The Bank of England’s rate-setting committee has kept interest rates at 0.5% and rejected calls to inject more stimulus into the economy. The decision means the Monetary Policy Committee (MPC) has now kept rates at historic lows for four years. There had been calls for the Bank to do more to support the economy and expand its quantitative easing (QE) programme. BoE governor Sir Mervyn King voted to increase the QE programme at the MPC’s last meeting. He was among three MPC members who backed a £25bn increase in QE to £400bn, but was outvoted. The pound rose sharply in response to the bank’s announcement, after earlier falling below $1.50 amid speculation more QE could be announced.

Earlier another business group, the British Chambers of Commerce, said it expected to see an expansion to quantitative easing, but not until May. The programme, which involves pumping new cash into the economy by buying government bonds, has instilled confidence among investors. But some economists are worried that without further stimulus, the UK economy will continue to grow at its present sluggish pace.

The poor performance of the economy has prompted calls for the Bank of England to take a more proactive role in encouraging economic growth. Sir Mervyn will be replaced by the current governor of Canada’s central bank, Mark Carney, in July.

Earlier the Financial Times reported that Chancellor George Osborne would use this month’s Budget announcement to give the new governor more power to get the economy growing again. The exact nature of the changes is not clear, but Mr Carney has previously spoken of broadening the bank’s remit to include targeting economic growth.

Sir Mervyn King has blamed Royal Bank of Scotland for holding back the UK’s economy. The Bank of England Governor urged the government to split up Royal Bank of Scotland Group Plc and speed up the return of Britain’s biggest publicly owned lender to private ownership following its bailout in 2008. “We’re four and half years on and there’s no sign of it going back to the private sector,” King told the Parliamentary Commission on Banking Standards at a hearing in London today. “That indicates we’ve not been sufficiently decisive in recapitalizing or restructuring it.”

King said the purpose of taking banks into public ownership was to restructure them and recapitalize them quickly. He contrasted Japan’s failure to restructure its banking system with Sweden’s nationalization, overhaul and rapid return of its lenders to private ownership in the 1990s. RBS has crimped lending and growth in the U.K. since its bailout, King said. “The lessons of history show very clearly that it is not a good idea to have banks in the public sector for very long,” King said. “The financial markets realized that the losses out there don’t go away. It’s better to face up to it.”

The stuttering U.K. economy got a potential boost this week as concerns eased over disruptions to North Sea output, a key contributor to the country’s economic performance. Approval for the long-awaited restart of the Elgin-Franklin natural gas field in the North Sea was quickly followed by a hitch-free return to full production at the country’s largest oil field, Buzzard. Add to that a swift resumption of a key oil pipeline following a leak last week and the increased activity in the U.K.’s vital oil-and-gas industry may just be enough to help the country avoid its third recession in five years.

UK’s credit rating downgraded from AAA to AA1 by Moody’s. The agency warned that “subdued” growth prospects and a “high and rising debt burden” were weighing on the economy. But Osborne said the loss of the gold-plated status did not mean the government should change course. The statement from Moody’s highlights the problems the weak medium-term economic outlook poses for deficit reduction plans. It now expects the “period of sluggish growth” to “extend into the second half of the decade”.

“The main driver underpinning Moody’s decision to downgrade the UK’s government bond rating to AA1 is the increasing clarity that, despite considerable structural economic strengths, the UK’s economic growth will remain sluggish over the next few years due to the anticipated slow growth of the global economy and the drag on the UK economy from the ongoing domestic public and private sector deleveraging process,” the agency said.

Osborne said: “As the rating agency says, Britain faces huge challenges at home from the debts built up over many, many years, and it is made no easier by the very weak economic situation in Europe.”Crucially for families and businesses, they say that ‘the UK’s creditworthiness remains extremely high’ thanks in part to a ‘strong track record of fiscal consolidation’ and our ‘political will’.

House prices posted their biggest year-on-year growth in more than two years in February as the market continued to improve, Halifax reported. At £163,600 on average, prices were 1.9pc higher than a year earlier and the lender said it expects to see a national increase in house prices over the course of 2013.

The annual increase was the highest recorded since September 2010, and prices were also up by 0.5pc on a month-on-month basis. That follows a 0.3pc fall in house prices in January, according to Halifax. Martin Ellis, housing economist at Halifax, said: “The more than half a million increase in the number of people in employment over the past year is likely to have been a factor supporting housing demand.”We expect to see a national increase in house prices over the course of 2013. Weak income growth and continuing below-trend economic growth, however, are likely to remain significant constraints on housing demand.”

Various studies have reported improvements to the housing market since the Government started a scheme last August to boost lending. The number of mortgages on the market has increased by around one third since the Funding for Lending Scheme, which helps borrowers by giving lenders access to cheap finance, was launched. Lenders are also offering some of their cheapest ever mortgage rates.

However, the Funding for Lending Scheme which began in August last year, was designed to encourage banks to lend more money, both to individuals and businesses, and boost the economy. But the Bank of England has announced that net lending fell by £2.4bn in the final quarter of last year compared with the previous three months. Business Secretary Vince Cable said the scheme may need to be “adapted”. “It is working in some areas with some of the new banks,” he told the BBC. “But it isn’t yet countering the very negative trend, the very conservative lending patterns that the banks in general are promoting in relation to business.”
Mr Cable said he would be speaking to the Bank of England, which operates the scheme, to see how it could be improved.

This month sees Bank of England Base Rate now been unchanged at 0.5% for four years. Will this change in 2013 - it certainly seems unlikely.

To discuss your mortgage and the different options available to you please call one of the Tyler Mortgage Management Account Managers.

Our advisors with an average of 20 years or more in the Mortgage Market can help guide you to the most appropriate solutions for your next mortgage and their wealth of experience should help ease the way for you to find the package that is most suitable for you.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage.

A typical fee for arranging your mortgage is 1.5% of the loan amount.

For more personalised comment and for advice about your own mortgage requirements do please pick up the phone and call one of our team on 020 7930 7242 or email one of us having read our profiles on the “about TMM” pages on this site.

Simon Tyler, 12th March 2013.



Client Comments

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Your home may be repossessed if you do not keep up repayments on your mortgage.

To discuss your current or future mortgage requirements please call 020 7930 7242.

A typical fee for arranging your mortgage is 1.5% of the loan amount.