Market Comment

January 2013.

Mortgage Market Update.

As we continue to plough on into this New Year many are wondering if 2013 to be the year of recovery or should we be looking forward to more of the same.

The UK economy could suffer a “groundhog year” in 2013, a left-of-centre think-tank, the Institute for Public Policy Research (IPPR), has warned, with little or no growth amounting to a rerun of last year’s economic performance, when GDP is thought to have fallen 0.1%. Other economists have predicted Britain will tumble into an unprecedented triple-dip recession and has a strong chance of being stripped of its prized AAA credit rating.

“It seems that time has stood still for the last 12 months,” said Tony Dolphin, IPPR chief economist. “Policymakers appear to have little idea how to boost growth in the economy and are left hoping that the news will get better. The risk is that 2013 could be groundhog year for the UK economy.”

His gloomy outlook was echoed by the Centre for Economics and Business Research, which said the UK economy had a 50/50 chance of falling into a triple-dip recession next year. The consultancy said household budgets would continue to be squeezed. People would be underemployed rather than unemployed and would suffer another year of falling incomes in real terms, with very slow pay growth failing to keep up with inflation.

Britain’s economy is feared to have plunged back into the red after figures suggested the powerhouse services sector shrank last month for the first time in two years. The Markit/CIPS purchasing managers’ index (PMI) survey showed a reading of 48.9 in December, down from 50.2 in November and below the 50 mark separating growth from contraction. The result marked the first dip in the services sector since a snow-related decline in December 2010 and comes after disappointing construction figures. Experts said the decline for the services sector, which makes up around 75% of total output, gives a clear signal that the economy went back into reverse in the final quarter of 2012.

The troubles that have overtaken Jessops, HMV and Blockbuster in the first couple of weeks of January do not bode well for retail business it would seem, but generally U.K. businesses are more optimistic on the economic outlook this year as tensions related to the euro-region debt crisis ease, according to separate surveys of finance directors and manufacturing executives published today. Britain’s economy is likely to return to growth this year, according to a Bloomberg News survey of economists last month. Still, services unexpectedly shrank for the first time in two years in December and a construction index fell to a six-month low, clouding the economic outlook.

House prices proved remarkably resilient during 2012. The Nationwide Building Society has reported that prices fell by 1% during the year, but given that the UK suffered its first double-dip recession since the 1970s, the fall could have been a lot bigger. A number of factors explain why the cost of property stagnated. Rising employment, low mortgage rates and the leniency of lenders towards those in arrears meant there were few forced sellers. Supply of new homes has dried up, and that was the main reason why the latest snapshot of the construction sector from CIPS/Markit was weak. The 1% drop reported by Nationwide masks big regional variations. An extra 47,000 property millionaires were created in Britain – most of them in London and the south-east, where the economy was much more buoyant last year than in the regions north of a line drawn from the Severn estuary to the Wash.

The Nationwide’s chief economist, Robert Gardner, said that given the UK was in recession for much of 2012 the figures could suggest the housing market had put in a “relatively resilient performance”. With the economic recovery expected to remain fairly weak, the market is likely to be characterised by low levels of activity again in 2013, with prices remaining flat or modestly lower over the course of the year.

What is the outlook for 2013? The Bank of England’s credit conditions survey suggests that more money for home loans is becoming available and at more competitive rates. Threadneedle Street always said it would take time for the Funding for Lending scheme, which offers lenders access to cheaper borrowing provided they pass the benefits on to their customers, to work after its introduction in August 2012, and so it has proved.

The Halifax expects the housing market to remain broadly stable in 2013 with prices likely to end the year at levels close to where they begin. The outlook for the UK economy and house prices, however, remains more unclear than usual. Subdued economic growth, sustained high unemployment and pressures on household finances will constrain housing demand. The relatively low level of mortgage payments in relation to income, however, should provide support for house prices, said Martin Ellis, housing economist at the Halifax.

More people expect house prices to rise than fall over the coming twelve months, according to the latest Halifax Housing Market Confidence tracker. Nearly four in ten, 38% of respondents predict the average UK house price will rise over the next year, whilst less than a fifth of respondents (18%) forecast a decline in prices.

What will happen to interest rates? Interest rates have now been at 0.5% for nearly four years. Will this change in 2013? It is widely believed that we are some way off seeing the Bank of England base rate rise. Barry Naisbitt, chief economist at Santander UK, agrees: “With overall economic activity still below the level before recession hit, and the consensus view that the economy is likely to grow relatively weakly next year, rates seem likely to be on hold for a good while longer.”

So, what action should borrowers be taking presently. Well, with a number of lenders having raised their Standard Variable rates over the last few 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 at 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, 15th January 2013.