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UK mortgage market update: October 2013

by Sable International | Oct 01, 2013
  • The mortgage market continues to be very busy, as it has been since March this year. We're continuing to see the effects of Funding for Lending, Help to Buy and other stimulus packages feeding through to the lending market. Various incentives in place within banks push this almost "free" capital through toward the mortgage market at the expense of the commercial finance and commercial mortgage markets. So what does this mean for you? Well, quite a lot actually.
    Firstly, the lending appetite has not been higher since the heady days of 2006 and early 2007. We're seeing this effect at the low risk 50% and lower LTVs and right up to the 90% LTV deals which represent the de facto ceiling of the market. I expect this to continue as long as the stimuli are in place and feeding through. Many have approached me about the new Help to Buy scheme which will open up to non-new build properties in April 2014. The Financial Times and others have campaigned for this to be scrapped, or at least not made available in London. There is no doubt that the combined effect of these stimuli have put a rocket under house prices again, and there are some legitimate concerns about the sustainability of this rate of house price inflation on London. Outside of London, I still think the Help to Buy scheme is a much-needed mechanism to free up an equity-starved housing system. 

    I’ve had many conversations off the back of the recent comments by Mark Carney (the new Governor of the Bank of England) that he would not raise interest rates until a certain level of total market employment was restored. His comments are laudable and probably required at this point in time, and in my opinion rely heavily on the fact that the UK economy seems to have considerable spare capacity. However, I hope he does end up having the degree of control he suggests. If not, I think the issue of higher interest rates might well be taken out of his hands. The market seems to agree with me and as a result we've seen the yield curve steepen since some good data emerged right after his speech. We've now seen five year fixed rates rise by approximately 0.3% across the board. I see more to come. 

    So what this all means is that the choice between tracker, fixed and fixed deal duration is something that requires a bit of thought. It also means that many of you who have enjoyed very low standard variable rates with lenders like C&G and Nationwide are now at the point where you should consider insider moves to lower trackers, lower two-year fixed rates, or a higher but longer five-year fixed rate. Timing is everything and the yield curve does help us look a little way ahead to the future.

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