Ten-year fixed rates

There has been good news for borrowers over recent weeks, as lenders have responded to falling funding costs by launching some record-low 10 year fixed rates.

Products that lock borrowers in for that length of time have not always proved popular, but the gap in margin between interest rates for 5 and 10 year deals has reduced significantly. 

Certainly the prospect of protecting your mortgage payments for the next 10 years at a record low rate will be attractive to many, particularly in such uncertain times.

Borrowers need to be aware however that the majority of long term deals carry Early Repayment Charges for the length of the fixed period.

It is important therefore to consider any changes in circumstances that could occur over the next decade, and whether more flexibility is needed. 

This type of deal is not suitable for everyone, but for the right person it could provide peace of mind for the foreseeable future.

Guild Mortgage Service, Provided by London & Country Mortgages

Lenders react to possible base rate cut

All eyes were on the Bank of England this week, following widespread speculation of an impending cut in the Base Rate - the first since March 2009. 

The Monetary Policy Committee has however voted 8-1 to leave rates unchanged, opting to wait until August’s inflation report before taking any action.

A number of lenders, including Halifax and Santander, have already withdrawn or increased their tracker rates over the last few days. In some cases the increases have been nearly 0.50%.

This certainly suggests that lenders believe the Bank of England is preparing to cut Base Rate very soon, and are looking to protect their margins. 

A drop in base rate will of course benefit homeowners who already have tracker mortgages, and would immediately see a drop in their monthly payments.

Guild Mortgage Service, Provided by London & Country Mortgages

UK HOUSE PRICE INDEX: MAY 2016 (released 19 July 2016)

The May 2016 house price index data for the UK showed a monthly rise of 1.1 per cent across England, Wales, Scotland and Northern Ireland, bringing the average house price to £211,230. In England the rise was slightly lower at 1.0 per cent but the average house price now stands at £226,807.

In London the monthly change was 1.5 per cent and the average house price £472,163, but higher monthly changes were seen in the North East at 2.1 per cent, the South East at 1.8 per cent and the East Midlands at 1.6 per cent. Monthly falls were seen in the West Midlands at minus 0.1 per cent, Yorkshire and The Humber at minus 0.2 per cent, and the North West at minus 0.3 per cent.

On an annual basis the price change across the UK was 8.1 per cent and in England 8.9 per cent. London saw the highest annual change at 13.6 per cent, followed by the South East at 12.9 per cent and the East of England at 12.8 per cent. The lowest rise was seen in the North East at 3.2 per cent. Detailed statistics for local authority areas show a wide variation but only nine areas saw a fall in prices over the year, notably the City of London at minus 9.2 per cent and Burnley at minus 6.2 per cent. The highest annual rise was seen in Slough at 23.3 percent. Broxbourne and five London boroughs also saw increases of more than 20 per cent.

Sales volumes for England in March 2016 totalled 102,597, an increase of 52 per cent compared to a year earlier. In terms of property type, flats and maisonettes saw the greatest annual increase in prices both across the UK as a whole at 9.2 per cent and in England at 10.1 per cent.   

Statistics relating to building status showed that the average price of a new build property in England was £293,461, up 9.6 per cent on the preceding month and up 17.9 per cent on a year ago. This contrasts with resold property, which has an average price of £222,455, just 0.4 per cent higher than a month earlier, and 8.3 per cent higher than a year ago. 

Statistics on buyer status in England showed that the average price of a house sold to a first time buyer was £191,099 and to a former owner occupier £256,593. The monthly and annual increase in prices was broadly similar for both: first time buyers saw monthly increase of 1.1 per cent, while re-purchasers saw an increase of 1.0 per cent. Over the year, prices for first time buyers increased by 9.1 per cent, while former owner occupier experienced an annual change of 8.8 per cent. 

The latest figures on funding status, which compare average cash and mortgage prices, show that in England the average cash price was £212,618 and the average mortgage price was £233,971. The monthly change for both cash and mortgage purchases was much the same at 1.0 per cent and 1.1 per cent respectively. However, the annual change for cash purchases was 7.9 per cent, while for mortgage purchases it was rather higher at 9.4 per cent. 

Help-to-Buy 

The Government Help to Buy initiatives have proved popular since their launch in 2013, allowing thousands of First Time Buyers to step onto the property ladder.

It is worth noting however, that these schemes are not just for the first-timers, but are also open to existing homeowners looking to move property. 

Recent figures showed a notable difference between the increase in house prices compared to those of flats. Someone looking to make that move to a larger property may therefore find they do not have as much equity as expected, so bridging that gap may be difficult.

Both Help to Buy schemes – the Equity Loan and Mortgage Guarantee – allow borrowers to put down just a 5% deposit. 

For those not keen to re-visit the Bank of Mum and Dad, this could prove to be a lifeline.

Guild Mortgage Service, Provided by London & Country Mortgages

Economic News - 12th July 2016

The referendum vote at the end of June in favour of leaving the EU will have a major effect on the UK economy in both the short and the long term. 

In the immediate aftermath, the Bank of England issued its twice-yearly Financial Stability Report, in which it warned there was already some evidence that the risks it had identified in relation to a Brexit vote, such as the slump in sterling, particularly against the dollar, were emerging and that the outlook for UK financial stability was ‘challenging’. 

However, the Bank averred that its preparation ahead of the referendum was paying off as financial markets continued to be relatively stable and there had been a fall in borrowing costs to both government and business, while the pound’s decline had provided a boost for exporters and businesses that earned revenues overseas. However, the weak pound is seen by others as a double-edged sword, as many UK exporters are also importers as a result of global supply chains and so will be up against higher input costs. The Bank has eased its special capital requirements for banks, which potentially frees up £150 billion for lending and could help if the uncertainty from the leave vote causes the economy to slow down and banks become more wary.

Nevertheless, the Bank’s Financial Policy Committee (the FPC) said there were risks apparent in the commercial property market, where vital foreign inflows had fallen by 50 per cent in the first three months of 2016. The FPC also repeated its concern over the significant level of UK household indebtedness and the vulnerability of some households to higher unemployment and borrowing costs. It also said that house prices could come under pressure, especially if buy-to-let investors abandoned the market.  

Recently released figures from the Office for National Statistics show that the trade deficit in goods and services widened to £2.26 billion in May from a downwardly revised deficit of £1.95 billion in April. The figures, which precede the Brexit vote, show that the deficit on trade in goods alone increased to £9.9 billion in May, up half a billion from April. 

Growth in the UK service sector slowed in June to its lowest level since February 2013 according to the closely watched purchasing managers’ index (PMI) produced by Markit/CIPS. Almost 90 per cent of the data was collected before the EU referendum result was known and a further slowing or possible contraction is feared likely in the coming months following the uncertainty created by the referendum. The Markit/CIPS construction purchasing managers’ index also fell in June to its lowest level since June 2009. 

Meanwhile, Moody’s, one of the three large credit ratings agencies, has downgraded the outlook for the UK economy from ‘stable’ to ‘negative’ over concerns about the impact of leaving the EU. Moody’s currently score the UK with the second highest credit rating on its scale but is now warning that it may lower it, which means that a higher rate of interest may be imposed on money borrowed by the government in international financial markets.

Currently, mortgage rates continue to creep downwards with several lenders cutting rates since the referendum. Many economists now believe that there is a high chance that the Bank of England will cut the base rates.