Market Comment

June 2011.

Mortgage Market Update.

Summer has finally arrived bringing with it the annual problems of water shortages and naturally the first significant rain for the last 3 months – good for the garden, bad for Wimbledon, Cricket and all the traditional summer activities. The warmest months of the year have generally been a slightly quieter period in the property market over the years our busiest periods have been Spring and Autumn. This year the fabulous Spring weather and the extra Bank Holidays meant we saw a dip in activity in the market in April compared to last year and a drop in house prices so perhaps June and July will be busier as transactions get pushed further back in the year.

Mortgage lending dropped in April to £9.8bn, down from the £11.4bn advanced in March and below the £10.3bn lent in April 2010, according to latest data.

This weakening in the market came as analysts at Morgan Stanley predicted property values will drop 10% by the end of 2012 and warned that falls in UK house prices are likely to begin hurting the profitability of the country's largest banks over the next six months.

There remain worries regarding the UK's economic recovery with The British Chamber of Commerce recently cutting its 2011 forecast from 1.4% to 1.3% and 2012 from 2.3% to 2.2%. But the IMF came out in support of the government's current policies in the first week in June and gave the government a strong case to continue with their harsh attempts to control their budget.

The Bank of England, meanwhile, trimmed its growth forecasts for this year and next and upped its inflation outlook. Inflation is now expected to peak at 5%. It also hinted at a rate rise before the end of the year by suggesting that inflation would return to the 2% target if interest rates follow market expectations of a rise to 1% by the end of this year.

Also at the Bank of England the MPC continued to hold interest rates at their record low rate of 0.5% when they announced their latest decision on 8th June keeping bank rate unchanged since 5th March 2009. The latest Minutes available as we write (18th May) revealed the voting split remained at 6-3 in favour of no movement. The chances of a rise had diminished greatly since the April previous meeting. Many economists, noting a fall in inflation in March, began to wonder whether the first rise would be delayed until 2012.

Currently, for borrowers benefitting from base Rate Trackers, there appears very little reason to change at present, although it would be wise to keep an alert eye on interest rate swap rates.

Depending on whom your current lenders are you may be paying a standard variable rate of interest at around 4.5% so with lenders currently attracting new borrowers with five years fixed rates at up to 0.5% below these levels, making a switch not only cheaper but also much, much safer.

For the more ambitious larger savings can be made with "lifetime" trackers available at below 2.5%, significant savings could be achieved in the short term if you are not too concerned about being exposed to potentially rising interest rates in the coming years.

If you are not buying a new home or considering reviewing your mortgage then you might like to join the ranks of the Residential Property Landlords as the lack of first time buyer funding and the lack of new rental property in the market appears to pushing rents up and making property investment more attractive once again and with new lenders coming into the market and existing lenders considering re-entering the Buy To Let market (this week the Kent Reliance) the choice of products on offer is growing and terms are slowly improving from the nadir of the market in 2009. Some clients still see this market as a good long term investment compared to many other investment types.

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.

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.

Not all buy to let mortgages are regulated by the Financial Services Authority.

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.

Simon Tyler, 9th June 2011.