Market Comment

November 2012.

Mortgage Market Update.

So, as we move from summer to autumn, and we see our first snows in the South West, are we still feeling the warm glow from the Olympics.

Our economy came out of recession in the third quarter of this year, having been in recession for the previous nine months. The economy grew by 1.0%, according to official gross domestic product figures (GDP), which measure the value of everything produced in the country. The Olympics contributed around 0.2% percentage points.

The positive 'surprise' in these figures is largely to be found in the service sector, which is estimated to have grown by 1.3% in the third quarter, after shrinking by 0.1% in the three months before," said Stephanie Flanders, the BBC’s Economics Editor.

The data also exceeded expectations from economists, who had predicted an increase of 0.6% in the quarter.

It is now felt that Britain’s economic growth will outpace all other major European Countries over the next couple of years. Predicting that recession would continue in the Eurozone in 2013, with only marginal growth in 2014, the Centre for Economics and Business Research (CEBR) said Britain would grow by 0.8pc and 1.4pc respectively. Germany, Europe's largest and most powerful economy, is expected to grow by 1.2pc in 2014, while France is expected to grow by 0.2pc, according to the CEBR.

Meanwhile, Bank of England policymakers are expected to vote against pumping more money into the economy this week. The Bank's Monetary Policy Committee is expected to leave quantitative easing unchanged at £375bn and interest rates on hold at 0.5pc on Thursday after the economy grew 1pc in the third quarter.

Economists were previously forecasting a further £50bn injection of QE at this month's policy meeting, but that view changed after the economy grew more strongly than expected between July and September, and the Bank's deputy governor Charlie Bean questioned in a speech whether QE could boost growth in the current economic climate.

The average UK house price rose 0.6pc during October, but Nationwide warned that the market remains volatile and sustained growth is still some way off. The average selling price of UK homes rose 0.6pc in October to £164,153, but the lender warned that values had yet to settle into an upward trend as September had seen a 0.4pc fall.

Robert Gardner, Nationwide's chief economist, said: “The annual pace of change continues to display a picture of relative stability, with house prices down just 0.9pc compared to October 2011." House prices are still a long way from their pre-crisis peak of £186,044 in October 2007, but have recovered significantly from February 2009 when they reached a low of £147,746.

The number of agreed house sales rose by 9.2pc nationwide in the strongest uplift seen since the spring, with Wales and the West Midlands seeing strong growth of 18pc and 17.6pc respectively. A separate Lloyds TSB survey last week showed home sales in England and Wales rose 2.2pc in the first half of this year to 282,086, with Felixstowe in Suffolk the hot spot and Salford the weakest. Demand for housing remains “subdued”, with the market unlikely to recover fully until there is a sustained rise in household incomes, the report said.

Prices were flat in London and fell across the rest of England and Wales. The West Midlands saw the biggest drop of 0.5pc, prompting the second biggest increase in sales.

Mortgage approvals were higher in September than in the previous month but still fell well short of the same period in 2011, as new figures showed that activity in the housing market remains sluggish. Mortgage lending totalled £7.3bn in September, down 6pc on the same month last year, according to the BBA's high street banking report. Numbers of remortgaging approvals were 15pc lower than in September 2011 and approvals for other secured lending were 23pc lower.

The Financial Services Authority (FSA) has published their Mortgage Market Review (MMR) proposals and they are not as restrictive as some had feared. The new regime will come into effect on 26 April 2014.

Rules have been designed to help existing bank and building society customers unable to move property or remortgage, typically because of a lack of income or equity. To help these borrowers the FSA says that lenders will be able to 'switch off' mortgage affordability and interest only rules, providing they have a good repayment history.

Another new rule will require more mortgage lenders to give advice when customers approach them directly. The regulator wants to reduce the amount of borrowers choosing the wrong rate or mortgages they cannot afford. High net worth borrowers will be able to opt out of advice providing they have an annual net income of £300,000, or minimum net assets of £3 million.

Martin Wheatley, managing director of the FSA and CEO-designate of the Financial Conduct Authority (FCA), said: "To ensure the measures are effective but practical we spent a great deal of time discussing our proposals with consumers, firms, parliamentarians and numerous other stakeholders. I am therefore very confident that we have come up with a set of rules that are proportionate and sensible."

One of the major concerns of the FSA is the existence of “Interest-Only” mortgages. Moody's Investor Services investigated the UK property market and reported that 52.6pc of existing loans in London are interest-only. The loans, which do not require the borrower to pay back any of the capital borrowed until the end of the term, make up a majority of 51.2pc of outstanding mortgages in the southwest and 52.5pc in the southeast.

Many who took out interest-only mortgages counted on endowment savings plans to pay off the capital at the end of the term, but many of these investments have not performed well enough to produce the sum needed to pay off the mortgage.

The Financial Services Authority will introduce new rules in 2014 which will require lenders to determine how the borrower will repay interest-only loans at the end of the period. The watchdog estimates that 40pc of outstanding mortgages across the country are interest-only.

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 five year fixed rates of below 3% 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, 10th November 2012.

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