Market Comment

May 2010.

Mortgage Market Update.

The Election and its lack of a definite new government delayed this month’s update beyond the date of this month’s interest rate decision from the Bank of England – which given the uncertain nature of the election result and the troubles of the Euro and the Greek assistance package – was a highly predictable decision to make no change to the base rate at 0.5% once again.

Less predictable at this point are the new coalition government’s policies for the financial and housing markets – matters that are very close to our hearts here at TMM.

The next month will give us a view on how they will deal with the future regulation of Banks and the role of the Bank of England and the FSA.

The future of Home Information Packs may well be short lived and the new Government will have to address the plans that were in place to build 250,000 new homes a year in light of the chronic under achievement in this area for the last couple of years.

Of course there is the not insignificant issue of the massive deficit in government funding that will need to be addressed and the first Budget of the Coalition Era will certainly not be a ”give away” budget but is widely expected to be a “snatch back” budget of severity. Income taxes, capital gains tax are likely to be noticeably higher. One Lib Dem suggestion that appears to have not made it to the start line is the proposal of “Mansion Tax” for high value properties which is a further welcome item of news for some of our clients, especially those who have high value homes, large mortgages and, in recent years, lower income – the consequence of the implementation of a tax based on the value of your home was not a happy prospect for such individuals.

Whilst the politicians were busy negotiating and jockeying for position The Mortgage Works (now part of the Nationwide Building Society) surprised the market by making some of their Buy To Let mortgage range available to the racy level of 80% Loan To Value. For most of the last 50 years investment mortgages (now known as Buy To Let) were available to 75%. During the late 90’s competition took many lenders up to 80% and then 85% – at the height of the boom (from around 2005) it was possible to get as high as a 90% advance with some lenders – however with the arrival of the liquidity crisis and the recession most BTL lenders left the market and the remaining lenders raised their margins and lowered the LTV limit to 60%-70% thus changing the face of the market substantially. Over the last year we have seen 75% lending becoming more common and now since 10th May TMW have taken the market a further rung up the ladder. With rates from around 4.7% to close to 6% and 2.5% or more fees it will take a property with a spectacular yield to allow an 80% loan to be approved, none the less this is a positive step in the right direction.

There seems to be a general feeling of relief that we have a new Government and an acknowledgement that although the future will still be tough that we are over the worst in the general economy and the housing market. The potential clients we are now talking to are more positive about their reasons for moving than they have been for some time and although, as we have found in previous elections, levels of activity in the month before the election were down , there is a real feeling that we can plan for the future with some optimism once more – and with luck the sun will reappear shortly and make a cameo appearance before the Summer is over.

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, 12th May 2010.

Next update Due 11th June.