Base Rate Update:-
The UK base rate remains at 0.5% for the eleventh month running. Although there are signs that inflation is starting to increase in combination with the increase in the rate of VAT, there are no indications that the Bank of England is planning to reverse its low-rate policy.
Recession:-
The UK finally emerged from recession in January. In the last three months of 2009, the UK grew by 0.1%. Whilst this is lower than expected, it is a welcome end to the stigma that is attached with being in recession.
Housing Market:-
The housing market continues to show strong growth. According to Nationwide, house prices increased by 1.2% in January. In addition, the average price of a UK property cost 8.6% more compared to this time last year. Unless there is a fall in property values this month, annual house price inflation is likely to move into double-digit territory next month for the first time since May 2007.
Mortgage Market:-
It is clear that banks now have a much stronger appetite to lend. Over the last six weeks, there has been an incredible 22% increase in mortgages available at 85%; with approximately 384 products now available. There has also been an increase in the 90% sector, with approximately 165 products now on offer. This is good news and if lenders continue to operate in these markets, we could see a significant improvement to the housing market in 2010.
Risk remains central to lending policy and products are priced to reflect this. 70% to 75% lending is considered “safe” with some rates as low as 2.69% and fees of £995. At 85%, we are seeing rates at 4% and 90% options at 4.99% with fees as low as £99.
Buy to Let:-
The buy to let market has also seen some impressive signs of improvement over the last five weeks. During 2008 and 2009; the number of buy to let products available seriously decreased and the few lenders left in this space introduced very heavy fees; typically 2% of the loan amount. Whilst lenders had major concerns about this sector, recent analysis suggests that tenant demand is still very strong, particularly in London. In addition, some lenders have introduced products without a fee and lending at 75% with rates below 6%.
Summary:-
Whilst the above news is very encouraging, some lenders continue to tighten lending policy and are beginning to increase their standard variable rates. Some SVR margins are now disjointed from the base rate. Certain pundits refer to this as the “SVR Trap” where lenders look to increase variable rates given the volume of people now taking advantage of the low margins. This is a potential problem for existing borrowers and we have been working with many clients recently to secure refinance products to minimise this risk. Given that property values are more stable; we expect to see the remortgage market grow this year for these reasons.
Whilst we don’t anticipate too much in the way of “outstanding” news this year; we don’t expect a return to the horror stories the credit world has experienced over the last two years. We are very positive about the future and we continue to work very closely with clients to address their needs.
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