Mortgage Market Comment by TMM


Market Comment

June 2013.

Mortgage Market Update.

So, following a cold and, in some places, snowy May is there any financial news to warm our hearts or is there still a big chill? Well, actually, there is some good news.

At the Bank of England’s quarterly inflation report and his last as Governor, Sir Mervyn King predicted modest economic growth this year and a fall in inflation. The Governor said the outlook for the UK economy had improved with growth likely to reach 0.5% in the second quarter of 2013, in addition to the 0.3% registered in the first three months of the year, giving an overall 1% rise of this year. “The economy is likely to see a modest and sustained recovery over the next three years,” the central bank said, though it added that the recovery would “remain weak by historical standards”.

This represents the cheeriest outlook for a couple of years during which it has steadily downgraded its growth forecasts. Britain has been suffering its slowest economic recovery in decades, and the Bank forecast that GDP was more likely than not to remain below its pre-crisis level for another year or so.

At the same time the Confederation of British Industry (CBI) sees signs of rising business confidence, while Lloyds data shows growth in seven of England’s nine regions. Britain is starting to see green shoots of recovery as business activity picks up, companies continue to hire new staff and consumers start to spend again. A series of surveys published at the end of May suggest the UK is on the road to recovery after its double-dip recession, providing a boost for Chancellor George Osborne. The CBI expects the economy to grow by 1% this year and 2% in 2014. That contrasts with the IMF, which recently slashed its growth forecast for the UK from 1% to 0.7%, and suggested Osborne should rethink his austerity programme.

In April, business activity grew at its fastest rate in eight months, according to Lloyds TSB’s purchasing managers’ index. The PMI – which is based on data from 1,200 manufacturing and services companies – came in at 52.2 in April, up from 51.6 in March, moving further above the 50 mark that separates growth from contraction.

Of course not everybody was being so upbeat. OECD cuts UK economic growth forecasts for 2014. In its half-yearly forecast, the Paris-based Organisation for Economic Co-operation and Development (OECD) said the UK was on the right path to a more balanced budget, despite warning that cuts and low consumer and business confidence would put a brake on growth. It said the economy would grow by 1.5% in 2014, down from its previous forecast of a stronger 1.6% increase.

The OECD highlighted concerns that the euro will remain a danger for the world economy if policy decisions prolong the current recession. Pier Carlo Padoan, OECD chief economist, said: “In the euro area, still-rising unemployment is the most pressing challenge for policymakers. Protracted weakness could evolve into stagnation with negative implications for the global economy.” This, he said, would raise the spectre of further weakening banks, higher government borrowing and the threat of a country being forced to leave the single currency.

UK house prices recorded a “modest” rise in April, increasing by 0.4%, according to the latest survey from the Nationwide building society. It said the increase provided further support for “the view that the housing market is gradually gaining momentum”.

Robert Gardner, Nationwide’s chief economist, said a number of factors were likely to have contributed to the recent pick-up in activity. “There has been an improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures, such as the Funding for Lending Scheme,” he said. “With the UK returning to growth in the first quarter of 2013, the improvement in wider economic conditions may also be playing a role in boosting sentiment.”.

Data from the Land Registry has shown that price changes have varied widely across the UK. Figures published on recently, covering England and Wales, showed that house prices rose by 6.2% in the 12 months to the end of April in London, and by 1.4% in the South East of England. However, the North East of England saw average price falls of 5.7% and there was a drop of 3.7% in the North West of England over the same period.

The Nationwide report shows that house prices are now 1.1pc higher than they were a year ago, marking the fastest annual increase seen since November 2011. Prices edged up 0.4pc month-on-month in May to reach £167,912 on average, the building society said.

The study is the latest in a string of reports which have pointed to returning confidence in the housing market in 2013 as borrowers find it easier to access a mortgage. The number of mortgages on the market has increased sharply since the Government launched a scheme called Funding for Lending last August, which has given lenders access to cheap finance to help borrowers. Lenders have been slashing their rates and they have also reported increased numbers of first-time buyers entering the market.

However, not everybody is happy with the Governments attempts to revitalise the Property market. The HomeOwners Alliance says government’s stated policy of encouraging home ownership being undermined by stamp duty. The UK housing market is being choked by stamp duty, which has risen by more than seven times the rate of inflation since the mid-1990s, taking the typical tax bill faced by buyers to almost £6,000, a report by a homeowners’ campaigning group has said. The HomeOwners Alliance (HOA) said the government’s stated policy of encouraging home ownership was being undermined by the duty, which it claimed has had “a downward impact” on the market. In a report entitled Stamping on Aspiration, it said that while prices had risen fivefold between 1995-96 and 2011-12, the amount of tax paid on property purchases had increased 11-fold.

Despite the collapse in stamp duty revenues since the housing market started to falter in 2007, the HOA said the government expected to collect about £7bn in the current tax year and £11.7bn in 2017-18, more than it makes from taxing tobacco.

The HOA wants to see thresholds increased annually in line with house prices, and for the first threshold to be above the average house price. It said buy-to-let investors and second-home buyers should pay more than those buying a home to live in, and the government should consider charging sellers, not buyers.

It also called for first-time buyers to be permanently exempted from the tax. Various stamp duty holidays have been offered by the government to entice first-time buyers into the market, but there is no evidence that they have led to more purchases.

Mortgage lending increased by 4% in April to the highest level in more than four years, but the Council of Mortgage Lenders said the average value of new home loans was “still barely half” what it was before the financial crisis.

The CML’s gross lending figures, which reveal the value of loans advanced during the month without taking into account repayments, showed £12.1bn worth of mortgages were taken out during the month, up from £11.6bn in March. The figure was 21% higher than that for April 2012, but the CML cautioned that meaningful comparisons of the two months were difficult because the end of the stamp duty holiday on properties worth up to £250,000 in March 2012 had led to a dearth of sales immediately afterward.

There are currently some extremely competitive interest rates being offered with five year fixed rates being offered at well below 3%. As well as offering protection against interest rate rises, when they eventually happen, they also offer lower rates that many lenders short term base rate trackers. However with the extremely vigilant underwriting taking place currently now is also not the time to be dabbling with lenders that you are not familiar with. Now, more than ever, the role of an experienced mortgage broker is extremely important in being able to identify lenders that are not only offering competitive interest rates but those that will actually lend.

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, 7th June 2013.



Client Comments

“I have known Simon for 30 years. He is a thoroughly dedicated professional, and I can guarantee for any prospective client, that you will not be disappointed. He has assisted me with some tricky requests for mortgage assistance and without his help, I would never have been able to achieve my goals. I trust this man wholeheartedly, and suggest that you do the same.”
Tony Eager
International Manager – Security Industry.

“I have dealt with Simon since 1988 and helped develop IT solutions for his companies as well as receiving excellent personal mortgage advice from him as he built up his companies. Simon is unquestionably and honest and genuine person to both work with as a supplier and to receive unbiased advice from.”
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Technical Director and CEO, Risk Free UK LTD.

“Simon is an expert in his field. He has provided me with sensible, effective advice on mortgages on numerous occasions.” .
Cary Zitcer
Business Owner in the Security Industry. Dealt with Simon since 1980.

“Over the years Simon has advised us on many occasions with regard to our mortgage requirements. Simon stands out from the crowd in this industry for his sheer depth of knowledge, long established relationships with mortgage providers, and general gravitas. Despite several aborted property purchases, Simon has always come up with the goods when we most needed it, and most recently, he assisted us in the purchase of what I can confidently say is my dream home, against stiff competition. Simon is also a great industry commentator.”
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“If you're buying a new home or ever need to borrow money cheaply and reliably, through a new mortgage, a bank loan or any other financial instrument, Simon has always been one of the best experts – and commentators.”
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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.