Market Comment

August 2012.

Mortgage Market Update.

The world is focused on our London Olympics and the feel-good factor Team GB's success is giving us would have been a factor in helping to move our economy forward if it were not for the over-riding issues of the Euro-Zone crisis. Apparently, Europe has seen the hottest summer since records began, and we were the only country to miss out on this party due to our astonishingly wet "summer" . Our housing market appears to have reflected our poor weather.

It would appear that our economy is suffering in much the same way as our weather has been. Bank of England Governor Sir Mervyn King will slashed his growth forecasts for the economy yet again this week and throw open the door for further stimulus in an effort to boost the UK’s flagging output. King predicts the UK’s economic output will flatline this year or could even contract slightly if the Eurozone crisis is not resolved.

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.

Chris Williamson, chief economist at Markit, warned: “The Bank’s report is likely to show a downgrading of its current growth forecasts, given the flow of disappointing data since the May edition. A lower forecast increases the likelihood of the Bank increasing its asset purchase programme in September, with growing numbers of analysts also expecting the Bank to further cut its policy rate, already at an all-time low of 0.5 per cent.”

Hopes that the economy will rebound strongly from recession have been dealt a severe blow by figures showing that the manufacturing sector shrank at its fastest pace in three years in July. Activity in Britain’s largest single industry contracted more rapidly than at any point since May 2009, according to the closely-watched purchasing managers index (PMI), raising the prospect of more money printing by the Bank of England today. Manufacturing PMI fell from 48.4 in June to 45.4, where anything below 50 indicates contraction. The result was far weaker than analysts’ expectations of 48.6. “A slump on this scale was not expected,” Ross Walker, UK economist at Royal Bank of Scotland, said

Halifax has added to a number of recent reports that the UK housing market weakened in July. The lender reported that average prices fell 0.6% month-on-month in July, following on from increases of 0.8% in June and 0.4% in May.

House prices have now fallen in five of the last nine months according to the Halifax, while they have risen in four. House prices were down by 0.6% year-on-year in the three months to July, while they were flat in the three months to July compared to the three months to April. .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.

On the Halifax measure, house prices stood at £161,094 in July, which is 4.4% below the last peak of £168,593 in April 2010.

Halifax's figures tally with those from Nationwide, which reported house prices falling 0.7% month-on-month in July, and the Bank of England, which said that mortgage approvals fell to an 18-month low in June. Dr Howard Archer, Chief UK Economist at IHS, said the all-time high for house prices on the Halifax measure was £199,612 in August 2007. This put house prices in July 2012 19.3% below the August 2007 all-time high. "We expect house prices to trend lower over the rest of 2012 and very possibly beyond, in the face of weak activity, low and fragile consumer confidence, muted earnings growth and high unemployment," he also noted.

However, although average UK house prices fell at their fastest annual pace in nearly three years in July, the South East remains buoyant. These results were led by changes outside of London and the South East, where international demand for property remains strong, pushing up prices. The national decline is much bigger than forecast by economists as the effects of nine months of recession spread further across the economy.

Independent buying agent Gabby Adler, said that the further slide in house prices in July was expected, underlining the fact that the housing market is still firmly in the doldrums. But that it was important to remember that this is a national average and regional differences are significant. "What is true of the property market in the north of the country, for example, is very different in London or other property hot spots," she said. "But as problems in the Eurozone mount and with continuing concern over the shrinking UK economy after poor GDP figures for the second quarter, demand is weakening in the housing market as supply rises in some areas. That said, in parts of London where there is a shortage of decent family homes for sale, for example, demand remains high."

So, what action should borrowers be taking presently. Well, with a number of lenders having raised their Standard Variable rates over the last couple of months, there is absolutely no sense in sitting on your lenders SVR, especially with the competitive Tracker and Fixed rates, such as a number of five year fixed rates now available just above or just below 3%. 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 ones who will approve your loan.

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, 10th August 2012.

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