Market Comment

March 2011.

Mortgage Market Update.

In the mortgage market the last couple of months of 2010 ended with a pathetic whimper rather than the bang that might normally accompany the Xmas and end of year activities. Of course heavy snow slowed the already slow housing market almost to a stop in December.

2011 has got off to a similarly slow start, as did the last 2 years in terms of our own experience of mortgage transactions and we are now heading firmly towards the Spring and Easter, which is often the start of increased activity in the market. With very little new money in the market as a whole, it is unlikely that housing transaction levels will increase beyond the levels we have become used to over the last couple of years.

For some weeks now there has been much discussion over the likelihood that interest rates will be forced to rise to combat the rising levels of inflation as the year progresses. As of the 10th March the Bank of England decided that it was still not the right time to raise rates and so for 24 months we have enjoyed the lowest Bank Base Rate on record. The concerns about possible interest rate rises have produced more enquiries from borrowers about the benefits of fixed rates over recent weeks, but for those of you with lifetime tracking loans with rates of 0.75% to 1.75% over Base, the monthly cost now of moving to a 5 year fixed rate at around 4.75% would represent at least a doubling of interest costs for you - which is a heavy price to pay for some interest rate protection. For those of you who may be paying 4% or more as a variable rate at the moment then a switch to a long term fixed rate could make considerable sense.

The issue troubling most commentators and economists is how high will rates rise, and when, much of the inflation figure has been effected by the rise in VAT and the hike in oil prices which has been exacerbated by the unrest in N Africa and parts of the Gulf. Both of these elements might not be considered to have long term effects on inflation and so the pressure to raise rates may not be as great as some think. Meanwhile with the effects of the current economic pressures producing a drop in retail sales values in February 2011 prompting the following comments from The Director General of the British Retail Consortium “Apart from a bit of help from half-term for some retailers, February’s sales were weak. Other than the negative figures last April (caused by the year-to-year movement of Easter), this February's 1.1 per cent total sales growth is the poorest since May 2009 – even poorer when the impact of the VAT rise on inflation is taken into account.

Even online, the growth in sales of non-food items slowed to an 18-month low. Customers are cautious and cutting back in a big way on non-essential spending. Against this background of deteriorating sales, the BRC has written to the Chancellor urging him to use his Budget to support retail's essential contribution to jobs and growth by avoiding new burdens and removing existing ones."

So in our opinion, and looking simply at the housing market, if interest rates rise too far spending on the high streets will be further damaged due to the reduction in disposable income and our fragile economy could be thrown back into further recessionary problems.

2012 with the benefits of the Diamond Jubilee and the Olympics (now 500 days away) allied to the continuance of low interest rates could see a more positive and thriving economy as we head into 2013 and if new lenders arrive in the UK market over the next 18 months to join the few who have started lending since the end of 2009, a stronger housing and mortgage market should await us in another 2 years or so.

Every time we try to look into the future another issue clouds the economic view, the latest being the series of catastrophes to hit Japan which will certainly have an effect on the world’s economic recovery given their significant position in the Motoring and Semiconductor Markets and of course the abundance of Electronic Goods Manufacturers based in Japan. We can only hope for some good news from Japan shortly.

Given the lack of funding still in the UK Mortgage Market lenders continue to be very challenging to deal with for both borrowers and brokers alike, particularly if your financial circumstances do not exactly fit the ideal model of lenders who do not want to take the tiniest element of risk. We continue to benefit from our long term relationships with many key decision makers , which often gives us the opportunity to get a more favourable response for our potential clients than they can manage themselves. We continue to live in frustrating times for Lenders, Regulators, Borrowers and Brokers but the need for the intermediary’s skills has never been higher.

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, 14th March 2011.