Singing Pig

 

We believe that mortgage rates, which have lowered in the last few weeks as demand has dropped, are in an "affordability window"  which will be closed by mid September. This is when everyone is back from vacation and the children are back at school. 

 

So this really appears to be a case of “buy now whilst stocks last” as rates have been forced down to try to create increased demand as mortgage buyers’ confidence and expectation has hit a further low.   Lenders cannot afford to collect money in from retail depositors and not lend it out, given the interest rates they are offering to get funds in from savers.

 

If you have been waiting for cheaper rates before you remortgage,  this might be your month to take action.

 

The Bank of England are becoming increasingly concerned about inflation and have decided not to alter interest rates from 5% once again today (August 7^th).    It is still no clearer as to which way rates will move. On the one hand to quash inflation, normally raising rates prevents spending and so brings inflation in to check. On the other hand, dropping rates will prevent some people losing their homes under the pressure of significant raising of interest rates by lenders, and the combination of raised prices from Utility Companies, Petrol Stations and Supermarkets (food prices).    The burden on the economy of those losing their homes as well as increasing unemployment makes the prospect of lower rates appealing for consumers, but not necessarily for a Central Bank – time will tell.

 

In order to enjoy the lowest cash-flow most borrowers are now taking mortgages linked to the Bank of England Base Rate, in the anticipation that rates are more likely to go down than up. Those who opt for fixed deals are taking a rate that may be 0.5% to 0.75% more expensive over a similar period, but they believe the peace of mind offered by a fixed rate is more important than obtaining the lowest rates.

 

In the last few weeks there has been some disputing over who the largest lender has been for new business in the first half of 2008. For as long as most people can remember HBOS (or previously Halifax) has been the UK’s dominant new business lender. In the first 6 months of 2008 it seems that Abbey – with access to the balance sheet of Santander, its Spanish parent bank, may well have overtaken HBOS. 

 

HBOS with their exposure to all parts of the housing market through ownership of Builders, Estate Agents, Surveyors, as well as their five lending brands (Halifax, Bank of Scotland, Birmingham Midshires, The Mortgage Business & Intelligent Finance) have had a very difficult year as their share price (down approximately 70% in the last 12 months) indicates. 

 

Abbey are now so dominant that they essentially are only lending to prime borrowers with 25% or more deposit, and they are likely to get even more dominant if they buy Alliance and Leicester, as seems likely. Abbey were lending to up to 95% loan to value (ltv) in late March, but now only lend up to 85% ltv and you’ll pay around 1% per annum more than those borrowing at 75% ltv. This kind of cherry picking from lenders is understandable, but it also explains why first-time buyers are not coming in to the market in a big way at present. Even if they thought prices had come down to the bottom of the market, most lenders will want borrowers to have 15 -25% deposit, whereas 9 months ago no deposit was necessary.

 

This lack of deposit will slow the market down further and also make it more likely parents will need to remortgage to extract equity (if it’s there) from their homes to assist their children to buy a property – so the hope must be for some parents that new competitive remortgages will be available throughout the Autumn.

 

Despite all the bad news in the media about both the UK and US housing market, we have heard little about Europe since the Credit Crunch commenced. More and more bad new stories are coming to our attention from the Spanish market (particularly from the tourist areas) where housing prices are reversing badly and it seems that the house price reversal is not just a UK and US phenomena.     In the interests of research I am on holiday travelling around Brittany and Normandy and, as a bonus from my holiday, I hope to see if the property market is damaged in Northern France as a result of “Le Crunch”.

 

Our very experienced advisors have refocused in recent months and are able to use our tremendous relationship with lenders, built up since 1982, to really make a difference in a market where borrowers are still coming to terms with the fact that mortgages are very much more difficult to arrange. Also that the level of third party corroboration of facts is far more intense than we have seen for 15 years or more.