Market Comment

August 2011.

Mortgage Market Update.

Interest rates have once again been held at 0.5%, and any chance of a rate hike this year now seems to be receding fast. Against a backdrop of weak UK growth and debt fears across the Eurozone and US, the Bank of England took the widely expected decision to hold rates at a record low for the 29th month. So poor is the outlook, in fact, that the Bank now seems more likely to opt for another round of quantitative easing (QE) in an attempt to boost the flagging economy.

However there have been little chinks of light. The UK's residential property market picked up speed in the second quarter of the year, according to the latest Housing Market Activity Report by Connells Survey and Valuation. Residential mortgage valuation activity rose by 13% in the second quarter of the year compared the previous quarter, an increase of 29% compared to the same period of 2010. The quarterly rise was driven by a surge in June. The number of valuations conducted during the month rose by 35% compared to May as Summer buyers and an increasing number of property investors entered the market or expanded their portfolios.

Gross mortgage lending was up £1.8bn in June, a 16% increase on the previous month – but remained 3% lower than June 2010, according to Council of Mortgage Lenders (CML) figures. It takes gross lending for the second quarter of 2011 to an estimated £33.5bn, an 11% increase on the first three months of 2011 (£30.1bn) but a 3% decline on the second quarter of 2010, when lending reached £34.4bn. Lending for the first six months of the year reached £63.7bn, only slightly below the first six months of 2010 (£64.1bn). CML chief economist Bob Pannell put the year-on-year monthly drop in lending against a backdrop of the UK economy continuing to experience disappointing economic growth, falling disposable incomes and an uncertain jobs market.

A widely held view from economists forecasts the first hike from the record low 0.5% base rate may come as late as July 2012. After this, base rate is expected to rise slowly and gradually, as the Bank of England fears damaging the weak recovery. Although with the US authorities suggesting no increases in US interest rates until 2013 this low interest period could well continue even further into the future.

This revision of how soon rates will rise has led money market “swap rates” - which influence fixed rate mortgage costs - to slip back. Five-year swaps have dropped from 3.07% on 5 April  to 1.99% on 4 August. Rates have fallen substantially even since the start of July, five-year swaps stood at 2.53% on 1 July.

With all this background what should you be doing about your mortgage rate? A few lenders are currently offering mortgage plans that allow borrowers to benefit from the very low base Rate Trackers that are currently available, whilst offering the ability to switch into the lenders fixed rates when interest rates rise. These are available for both purchase and remortgage applications and  allow borrowers to “have their cake and eat it too” if they act promptly as rates change. Existing borrowers who are paying their lenders standard variable rates should seriously consider the benefits and costs of adopting one  of these new schemes or today's very competitive 5 year fixed rate offerings. With some lenders currently offering five years fixes at significantly  below 4% now would be an extremely good time to fix. Although it is likely that when Base Rate does start to move the increases the rise will be slow and steady, the swap rates, that lenders use to price fixed rates, can rise extremely quickly.

To discuss your mortgage and the different options available to you please call your Tyler Mortgage Management account manager.

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.

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, 10th August 2011.