Market Comment

July 2012.

Mortgage Market Update.

Having just experienced the wettest June on record, is the UK economy beginning to float or is it sinking without a trace?

Figures released this week showed the economy worsened in June, after the construction and manufacturing sectors contracted and the powerhouse services sector suffered its worst performance in eight months. Economists said the figures suggested the economy continued to shrink or at best was flat in the second quarter of 2012.

As expected, The Bank of England's Monetary Committee (MPC) held the base rate at 0.5% at their monthly meeting. Base rate has been at this record low for over three years now. They also announced it will pump a further £50bn into the UK economy over the next four months through its quantitative easing (QE) programme to try to help the economy. QE aims to boost the economy by buying bonds. The latest increase will take the total stimulus to £375bn.

The Bank said that the UK economy, which is back in recession, had "barely grown for a year and a half". It added that growth in export markets had also slowed and that the Eurozone debt crisis was "weighing on confidence here". Without an increase in QE, the Bank said there was a danger that inflation would fall below its target rate of 2%.

Last month, the Bank announced two new stimulus measures. The first of these will provide banks with access to tens of billions of pounds of cheap credit on the basis that they lend this on to businesses. The second provides banks with access to cash, should they encounter any short-term funding difficulties.

Analysts suggested there could be further stimulus measures on the way as the Bank tries to kick-start the UK economy, which shrank by 0.3% in first three months of this year and by 0.4% in the final quarter of 2011.

U.K. mortgage approvals fell a little in May and construction shrank at the fastest rate in 2 1/2 years in June, adding to signs the housing market as a whole is slowing amid growing concern over the economic outlook. Lenders granted 51,098 loans to buy homes, compared with 51,627 the previous month. A gauge of construction/building from Markit & the Chartered Institute of Purchasing and Supply showed output based on a survey fell to 48.2 from 54.4 in May.

Demand for homes has fallen as Europe’s debt turmoil casts a shadow over Britain’s economic prospects and banks curb credit. “Household lending has been depressed for quite a long time and there’s no evidence of improvement on the corporate side,” said David Tinsley, an economist at BNP Paribas SA in London and a former central bank official. Economic growth in the second quarter “could well be negative. It would be very strange if the Bank of England did nothing.”

Economists predicted that mortgage approvals would drop to 50,000, based on the median forecast of 16 economists in Bloomberg survey. Approvals are still running at half the monthly average seen in the decade to 2007, before the financial crisis struck.

House prices bounced by more than £1,500 in June, Halifax says, as the average property posted a 1 per cent gain. However, while Britain’s biggest mortgage lender said there had been ‘a marked improvement’ in house prices over the past 12 months, it cautioned that property values were unlikely to rise this year and sales would not pick up from their low level.

The outlook is pretty much in line with the warning that the property market will remain stuck in the doldrums by Nationwide. The building society warned that the outlook for the house prices ‘remains highly uncertain’ and prices were likely to continue to flatline over the next year. Nationwide report on their Survey that prices fell by 0.6 per cent in June, as the average property lost £300 of its value which remains an interesting contrast with Halifax's record of the last 12 months. Nationwide's property price index is down 1.5 per cent over the past year - the swiftest pace of decline since August 2009.

So, what action should borrowers be taking presently. Well, with lenders raising their Standard Variable rates there is little sense in sitting on your lenders SVR, especially with the competitive Tracker and Fixed rates currently available. 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.

To discuss your mortgage and the different options available to you please call one of the Tyler Mortgage Management Account Managers.

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.

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, 9th July 2012.

H0133031