Market Comment

September 2010.

Mortgage Market Update.

So following a sunny second weekend in September apparently the summer is over and we are heading into autumnal evenings and falling leaves.

To some that may sound a little depressing but for those of us with a livelihood that relies on the housing market the end of Summer and a return to school usually heralds an upswing in activity as house-hunters have more time available to them once holidays are over and children back to school. In a vibrant market people searching for property in September do so with the genuine likelihood that they will be in their new homes for Christmas. Sadly in today’s sluggish market moving by Christmas will probably be the exception rather than the norm. So as we head into the autumn we and our colleagues in the world of mortgage broking look forward in a state of optimism.

The Bank Of England have chosen to keep interest rates, once again, unchanged at 0.5%. So now we are now enjoying the longest period of Base Rate stability since the end of a 12 year period of frozen rates starting in the 2nd month of World War 2 and ending in November 1951 – a record it seems very unlikely we will see broken unless Base Rate remains unchanged until 2021 (but if you believe this will happen we suggest you look at the benefits of a long term Base Rate Tracking mortgage!).

This stability of rates and the end of Summer does offer buyers come comfort and enthusiasm but of course the continuing concerns about potential job losses due to the Government’s spending review and subsequent expected cuts to many public service jobs is an excellent reason for inertia in the market. The property market itself continues to offer conflicting data the two biggest lenders continue to disagree Halifax reports a small increase in prices for August and Nationwide a drop of nearly 4 times the increase Halifax reports. Over the last 12 months both agree prices have grown, 4.6% if you read the Halifax report and 3.9% if you take the Nationwide view.

Knowing where we are in the economic cycle is a very useful tool to have at one’s disposal when buying property for investment purposes. Nationwide’s average price index dipped to £147,746 in February 2009 down 17% over the previous 12 months now the average price is up at £166,507 which sounds very satisfactory if you had been able to buy the “average” house in Feb 2009 but if you had completed in June 2010 the price was £170,111 so maybe this is a bad time to invest? Clearly if you are thinking of investing into property you need to take a long term view and not study monthly charts or even 18 month views. Successful property investors take a 10 to 20 year view and seek to cover their costs and make a sensible annual profit but for the long term gain to come from capital appreciation.

The problem with the example above is that due to the liquidity crisis, and the attitude of the lenders, to have purchased an investment property in February 2009 would have meant using either, only cash or a very large deposit as very few lenders were left in the “Buy to Let” market at that point. Over the last 9 months the choice of mortgages in this part of the market has improved and the level of lending on each property has crept up allowing some investors a change to step into the market again. Certainly fees and margins are far higher than those available in 2007/8 but those days are gone and investors have had to adapt their financial plans and work with today’s realities. For some student lets have been a good area to invest in but these properties are often designated as HMOs (homes in multiple occupation) which causes most lenders now in the market to turn away mortgage applications. At TMM we now have access to funds from a lender who is keen to consider such HMO properties which we believe is a positive step forward and an indication that despite potential stormy weather ahead some lenders understand that if the owner occupation market is damaged by unemployment then the investment property market will become more active. For an indication of whether we can assist you if you have chosen to venture into the property investment market do contact one of the team for an initial conversation.

The reluctance of lenders to lend all but the most perfect propositions continues to provide us with remarkable signs of short-sightedness from the major banks. If you had had a long term satisfactory relationship with your personal bankers and requested a remortgage to raise some money, of which a small percentage will be invested in a new business venture, you might expect some questions to be asked before a quick “yes”. If you were borrowing less than half of the value of your home and had more than adequate income evident through your bank accounts you would think the lender would be more than helpful. Finally when you factor in the fact that over the last 25 years you have built up other successful ventures and sold them for significant sums all of which have passed through that bank’s accounts you would imagine they would help you “in a heartbeat”. Well, despite the fact the Bank involved is constantly advertising to demonstrate its helpfulness to one and all, the customer in question was turned down by Head Office underwriters leaving the local relationship managers embarrassed and in danger of losing a good client. Luckily for the borrower there are a number of other lenders who will offer terms who we introduced him to who can deliver the funds he requires in the short time period he wants.

This, along with other recent examples we have highlighted in our monthly commentaries, continues to highlight why after up to 30 years as mortgage brokers our skills, contacts and knowledge have never been so valuable to the – to use a topical reference – “brave few” who chose to purchase and remortgage in today’s market.

Hopefully over the autumn the “few” whilst not becoming “so many” will increase activity “so much” that the house price indices will settle and maybe rise slightly in 2011 as circumstances allow lending levels to increase.

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.

Your home may be repossessed if you do not keep up repayments on your mortgage.

You may have to pay an early repayment charge to your existing lender if you remortgage.

The overall cost for comparison is 5.3% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration.

A typical fee for arranging your mortgage is 1.5% of the loan amount.

Simon Tyler, 13th September 2010.

Next update due 18th October