Market Comment

July 2013.

Mortgage Market Update.

Remarkably its Summer, the sun is out, Wimbledon has been won by a British Man, The British & Irish Lions have won a series overseas, six months of 2013 have shot by and before we start an Ashes Cricket Test Series there has been time to wave goodbye to Mervyn King and, appropriately enough on Canada Day, see Mervyn hand on the reins of the Bank of England to Mark Carney.

Apart from the days already getting shorter, there was some good news for Mark Carney when he took over as Governor of the Bank of England - some fresh signs of recovery in Britain’s economy. Data showed that British manufacturing enjoyed its strongest growth in more than two years in June. Separate figures showed Britain’s housing market, which is picking up after spending much of the past few years in the doldrums, got another fillip. Mortgage approvals in May hit their highest level since December 2009.

An improvement in two of the sectors hardest hit by the financial crisis might give Carney reason to move cautiously as he attempts to get the British economy into a higher gear. Consumer confidence and annual house price growth also increased, both showing their strongest readings in over two years. Some economists said overall growth in the second quarter could turn out to be better than the 0.5 percent predicted by the Bank of England.

Alan Clarke, an economist at Scotiabank, said growth could come in at around 0.7 percent, or possibly as high as 1 percent, though others said the bigger question was whether it would prove sustainable. To some economists’ surprise, Britain’s economy avoided falling back into recession at the start of 2013 after two years of stagnation. But other data showed that the damage wrought on the British economy by the financial crisis was deeper than previously thought, and a combination of low wages and high inflation earlier this year inflicted the sharpest quarterly drop in a generation on household living standards.

Carney is not expected to push for more stimulus as early as that into his governorship, and more than half of the economists in a Reuters poll did not expect a resumption of government bond-buying by the central bank this year.

But a minority of Bank of England watchers think he is in fact likely to push for more asset purchases during 2013, given the still weak state of Britain’s economy.

British house prices rose at their fastest annual pace in nearly three years in June, data from mortgage lender Nationwide showed on Friday, adding to signs that Britain’s economy is starting to pick up.

British house prices rose at their fastest annual pace in nearly three years in June, data from mortgage lender Nationwide showed on Friday, adding to signs that Britain’s economy is starting to pick up.

“Demand for homes has been supported by further modest gains in employment, as well as an improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures, such as the Funding for Lending Scheme,” said Nationwide’s chief economist Robert Gardner..

Also seeing green shoots for UK housing market, are The Royal Institution of Chartered Surveyors (RICS). UK house sales rose to their highest level for more than three years in the three months to the end of May, according to surveyors. RICS said its members each recorded 17.9 property sales over the period on average. This remained well below the peak of the market, but provided further indication that there was some momentum in the housing market. Surveyors in all areas expected prices to rise in the year, which would be good for sellers but bad news for first-time buyers trying to get onto the ladder.

Nationwide found that the average price of a UK home now stands at £168,941, with stronger rates of house price growth recorded in the South East and London in particular. House prices in the South of England were up 3pc year-on-year in the second quarter of 2013, more than twice the 1.4pc recorded across the UK as a whole. Moreover, prices in London were up by 5.2pc year on year, taking the price of a typical home in the capital to an all time high of £318,214.

Mortgage lending leapt by nearly a quarter in May, prompting experts to predict an end to stagnation in the housing market. The Council for Mortgage Lenders (CML), which produced the data, said the numbers showed stronger house purchase activity than it was expecting and with the highest lending for any month since October 2008. Total gross mortgage lending in May increased to £14.7bn, a rise of 21pc from £12.2 billion in April and 17pc higher than the total of £12.6 billion in May 2012.

The boom in activity is also being fuelled by two Government schemes, which some critics claim will create an unsustainable bubble. The first, Funding for Lending, gives banks and other lenders cheap loans in return for them lending cash to individuals for home loans. This has reduced the cost of mortgages significantly.

The second Government scheme, Help to Buy, provides lenders with a guarantee of up to 20pc of the price of the property. If a borrower defaults on the loan, the taxpayer will be liable for a proportion of the losses.

Paul Broadhead, head of mortgage policy at the Building Societies Association (BSA), said: “Care is needed to prevent the actions taken today inadvertently causing a distorted housing market in three years time – a market where state intervention has artificially hiked prices.”

Building Societies have seen a significant jump in the number of mortgages offered to first-time buyers this year, with the number of loans up by 50pc, according to new figures from the BSA.

There was an even sharper increase in the number of mortgages granted to those with a 10pc deposit or less. In the first five months of this year the building societies arranged almost 9,000 of these loans, compared with just 3,400 in the same five-month period last year.

In total Building Societies helped 32,000 first-time buyers get on the housing ladder over the period. According to Bank of England figures, building societies advanced £14.5bn in mortgage lending over the five months, which accounts for a quarter of all mortgage lending. This is up from a 20pc share of the mortgage market a year ago.

On a net basis, which takes into account repayments on existing mortgages, the total amount lent by building societies has also increased. In the five months from January to May net lending by mutual was £4bn, more than double the amount lent in the same period last year. In contrast, net lending across the rest of the market contracted by £3.4bn in the first five months of the year.

So what action should borrowers be taking at the moment. Once again the warning is not to sit on your lenders standard variable rate. There are currently some extremely competitive interest rates being offered with five year fixed rates being offered at well below 3%. As well as offering protection against interest rate rises, when they eventually happen, they also offer lower rates that many lenders short term base rate trackers. Some lenders are releasing extremely competitive fixed interest rate mortgage schemes, but for limited periods only.

Competition is improving in the mortgage market, albeit primarily for those with sizeable deposits. Home owners should look at more than just the headline rate, however. The high fees attached to many of these so-called best-buys, mean that they are only likely to be the most cost-effective option for those with larger than average mortgages.

The only real way you can be sure of hearing about these is to be in contact with your mortgage adviser. Now is the time to talk to your Mortgage Consultant at Tyler Mortgage Management.

There are currently, still, some extremely competitive interest rates being offered with five year fixed rates being offered at well below 3%. As well as offering protection against interest rate rises, when they eventually happen, they also offer lower rates that many lenders short term base rate trackers. 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.

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, 8th July 2013.