Market Comment

October 2010.

Mortgage Market Update.

Over the years one can normally rely on an uplift in mortgage activity in September as people return from holidays and once children are back at school the hunt for a new home with a real anticipation of moving into a new home prior to Christmas. The nature of the current market and the level of concern about our individual and collective futures led to a quieter month than we and most of our competitors were anticipating.

In the last few days, once again, the two best known House Price Index providers appear to be in dispute on short term trends. Nationwide suggest that prices have risen slightly by 0.1% in September Halifax on the other hand believe the market has shown a fall of 3.6% in the month – that is quite a different view of what, one might assume is very similar data. Over the last 12 months both agree there has been an improvement 2.6% in the Halifax’s case and 3.1% in Nationwide’s. Clearly one month’s data means almost nothing, but over a 3 month period there is agreement in that both report a fall of 0.9% or approximately £1,500 for the “average” home.

Now your reaction to this might be, “ah-ha statistics don’t lie there is a sustained fall in house prices underway” but if you look further we can see that Halifax has been showing a fall in prices over the previous quarter for the last 6 months – Nationwide on the other hand has been seeing rises consistently over the same period. So what is going on?

Much heralded Public Service job cuts and potentially more expensive pensions and less availability of child benefit as we have heard of in the last week, are clearly making owners and potential owners of houses very uneasy. Theoretically, we are told, whilst perhaps 600,000 jobs may be lost in the Public Services, private industry will create new jobs to keep the unemployed figure low. I have asked around many people I know who run businesses in many different walks of life and none of them tell me they are about to create more jobs in the white heat of the Big Society revolution we have been asked to anticipate.

Maybe I know the wrong sort of business people, let’s hope so because it is this concern about job security and new job creation that will lower prices further as more people look to sell and downsize ahead of any potential problems and aim to be mortgage free before a wave of job losses overcome them. The Government still have the best part of 5 years to make their economic plans work so they are rightly not too worried about being the most popular of Administrations as at the moment - most of us understand that, the world over, we are having to take some bitter medicine to ensure we will be ok in the future.

Those people who wish to be mortgage free or others who are trying to move to reduce their mortgage size are beginning to put their homes on the market and as supply of housing is starting for the first time in a while to outstrip demand for homes there will be a re-adjustment in some house prices. This downswing should not be seen as the much discussed “double dip” it is just a result of prices rising a little too much last year when supply was slower and demand higher. The trouble of course is the herd mentality of the media will use this data as a stick to beat the economy down, as they do seem to revel in bad news stories.

Speaking of bad news, we see the continual over tightening and re-securing of the Barn Door, of future mortgage regulation, some 30 months or so after the Horse, of poor mortgage lending and poor advice market, bolted. Since that time close to 20,000 of the 30,000 mortgage intermediaries that were advising in 2007 have left the market. Those of us remaining clearly see the tough environment of the last 2 years enduring for some time. This is a natural consequence of the cyclical market we are used to but the various proposals of the FSA’s Mortgage Market Review in their proposed form look like a huge and stifling over re-action. Only this week the Council of Mortgage Lenders, the trade body that represents most UK lenders published some eye catching analysis –

If the current proposals were to be applied to the last 5 years lending 38,000 mortgages which have ended in repossession may have been stopped from being taken out but 3,800,000 loans currently in existence and up to date and probably keeping 3.5 million families warm and dry would not have been approved in their current form.

That’s right, 100 times as many “good loans” would not have occurred to cover the 38,000 that have been repossessed and that 3.8m mortgages that would not have been approved equates to just over half the loans approved and issued over the last 5 years. Even more significantly CML’s figures suggest that 95% of First Time Buyers would also have been turned down.

Now, neither we, nor the CML are against the tightening up of some of the rules that would make lending decisions more a product of the credit department and less made as a result of the sales & marketing team’s need for volumes. None the less the huge over-reaction will not do our economy or house-buyer’s confidence any favours.

Indeed if all the proposals of the MMR are implemented without adjustment we might look back at this bleak and slow period of the market as a golden time of opportunity for home buyers and that would be an unsatisfactory outcome.

On 7th October the Bank of England confirmed that the base rate would remain at 0.5% for at least another month and given the importance of the Christmas retail season it seems likely that the rate will not be adjusted until January at the earliest. This remains great news for those borrowers who are enjoying low rates on their mortgages as they have Base Rate Tracking loans at 0.29% to 2% over base.

Many of these buyers would like to move and take their mortgage rates with them, which in a lot of cases are transferable. A great deal of these borrowers are being frustrated even in their attempts to downsize as their current lender’s new lending criteria would not allow them to borrow even the reduced amount they might need – if, for instance you have been servicing a mortgage 3 times the size of the new one you need with ease this can be incredibly stressful especially when these borrowers are doing as the government would wish, reducing their reliance on debt...

Once again this is an area where we are busy applying our skills and influence to as more clients approach us wanting to downsize and be treated as a good borrower by their lenders even though their current income would not be acceptable if they were a new borrower, in a time when funds are in short supply this is not a time to rely on the goodwill of a commercially minded lender.

Paragon, one of the leading lenders in the Buy To Let investment property market returned to lending in September after a 3 year period where they were unable to fund new borrowing. Their expertise in the specialist area of lending to experienced landlords is renowned in our market and we are delighted to welcome them back and have the opportunity to work with them once again.

So we live in frustrating times for Lenders, Regulators, Borrowers and Brokers but the need for the intermediary’s skills has never been higher so we continue into the Autumn confident that even more borrowers will be dealing with us in the next few months as the changes I have described start to be recognised.

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.

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

Simon Tyler, 8th October 2010.

Next update due 10th November