Market Comment

February 2010.

Mortgage Update.

After a necessary pause I am happy to be back with my Monthly Mortgage Market Update. This edition coincides with the launch of our full website and the ability to publish our views on the web once again.

I have been writing a monthly update on our previous website since 1996 and although our archives are not complete I have plenty of historical comment to look back on. So to start a new era under the TMM Brand I thought it might be instructive to consider how much things have changed over the last 10 years and take a look at what I was saying in February 2000. Here is a taste of Tyler comment 10 years ago:

“Although we have now arrived in the 21st century and technology continues to develop at an enormous pace, we still believe it is important to offer our clients levels of personal service that were regarded as the norm in the 19th century. All our advisers take pride in offering a qualitative analysis of the market rather than just a quantitative view.

So, at present, what is our general advice to house buyers?

As always, our principle philosophy is to ensure long term security for our home buyers and recommend fixed rates. With variable mortgage rates ranging from 6.9% to 7.5% and a further 0.25% rise due this week, 5 year rates still available at 6.5% or below look increasingly attractive and for the pragmatic borrower these kind of rates would serve them well in the coming years. However, it is also possible to fix your rate for 3 years for around 6% and, depending on your view on interest rates, this also makes good sense.

Redemption penalties continue to be a problem in the market. The 3 year fixed rate I have just mentioned has a 2 year overhanging redemption penalty period. However, this allows the interest rate to be discounted to a more attractive level and, as long as the borrower is clear that they have a choice and that they know about the penalties at the start of the loan, these products seem perfectly reasonable to us and help offer massive consumer choice in the market. However, there are products with no penalties for those who wish to make substantial repayments and also plenty of products with penalties that only run for the period whilst the interest rate is fixed.”

Despite the fact we have had relatively low interest rates in the mortgage market from the Mid 90s when compared with the previous 25 year averages, the variable rates in 2000 look pretty unattractive when you compare them to some of today’s Base Rate Tracking Mortgages which offer starting rates in some cases below 2%.

It is instructive to see that with Bank of England Base Rate in Early Feb 2000 at 5.75% and Variable rates at Circa 7%, 5 year rates at 6.5% “look increasingly attractive.” Here we are 10 years later after nearly 12 months with a 0.5% Base Rate and yet 5 year fixed rates at around 5% are very attractive and being snapped up by worried home owners.

With the recent increase in Standard Variable Rate by the Skipton there is plenty of talk in the market of other Building Societies following suit so the remortgage market which has been very quiet for the last 12-18 months is beginning to revive and we are certainly hearing from far more clients who want to take a serious look at remortgaging as an option to protect themselves from potentially rising rates over the coming years.

The snow in January and the continued cold weather has caused the housing market to get off to an even slower start than we would have hoped for but the news of house price rises being sustained for some months now from both the Halifax and Nationwide surveys of house prices coupled with the much publicised news that we are “out of recession” are building up demand and expectation from buyers and sellers. We would hope to see at least a 10% rise in transactional activity during 2010 compared to 2009 and in the first Quarter of the year this would be hard to not achieve as the market was at an almost total standstill in 2009.

With the lack of liquidity in the market and the subsequent reluctance of lenders to lend, the role of the mortgage broker is more important than ever and with a huge reduction in brokers in the market (some commentators speak of 30,000 brokers in the market in 2007, 10,000 trading in 2010) keeping a relationship with a well connected brokerage with an experienced team of advisors should pay dividends this year. What we said ten years ago counts even more than ever – we still believe it is important to offer our clients levels of personal service that were regarded as the norm in the 19th century. All our advisers take pride in offering a qualitative analysis of the market rather than just a quantitative view.

To see just how we can help you achieve your mortgage-linked aims simply email or call one of the team who you can select from the appropriate page on this site or call us on 0207 930 7242 – we look forward from hearing from you.

Simon Tyler, 10th February 2010.