July 2007Interest Rates
Rates continue on their upward spiral. Minutes from the Bank of England's Monetary Policy Committee's (MPC) meeting earlier this month has revealed that members voted six to three to raise interest rates to 5.75%. This increase was certainly expected given the MPC said that there was no major signs of a slowdown in consumer spending or the housing market despite previous rate rises.
Many experts now expect rates to rise again soon to 6%, potentially as early as 2 August when the MPC holds its next meeting.
The Market
Despite month on month of record lending levels declared by the Council of Mortgage Lenders and Building Societies Association appears that the real level of new mortgage lending is finally starting to fall. A high percentage of mortgages have been re-mortgages with borrowers moving at the end of their fixed rates to new lenders offering better deals.
House price growth has started to show signs of slowing with the annual house price inflation in England and Wales reducing in July to 10.3% from 13.2% in June. (Rightmove).
Both Nationwide and Halifax expect annual house price growth to drop to around 6% overall for the year by December.
London however has continued to outstrip the trend with double digit figures for growth month on month. The very top end of the market has seen some astonishing sale prices, largely down to the lack of supply and continued demand from international and city buyers who see London as the place to be.
The Halifax Price Index for the second quarter of 2007 suggests that the average house in greater London now costs £313,212, above the current inheritance threshold.
A cautionary note however from Warren Bright, chief executive of propertyfinder.com, who commented: “The price growth we have experienced recently has been exceptional and a period of more subdued growth is to be expected. Home owners have become accustomed to double digit capital growth but these levels are unsustainable. It is only natural that after a period of such rapid growth, we should see a slowdown to bring house price inflation more in line with that of earnings.”
Mortgage Products
With the increase in bank base rates we have seen a repricing across the board. As the cost of funds in the market has increased particularly with the expectation of another rate rise so the newly launched products are reflecting this.
This will be of particular concern to anyone who is about to come off a fixed or discounted product and who has not already reserved a new rate. The jump for some will be very dramatic as many borrowers will coming off rates as low as 3.99% and now be looking at similar products at around 6%.
Longer term fixed rates are subject of the moment as the Government looks to encourage fixed rates of up to 25 years. Whilst there is an argument for these products, we would caution against borrowers rushing into long term fixed rates. Most will have punitive penalties and long term tie-ins and as few of us can predict what we will be doing in the next 2 or 3 years it could be a mistake to tie-up the mortgage for so long.
However it is encouraging to see 10 year fixed rates are still possible for Buy to let Investors at below 6%. As rental investment properties should be viewed as long term investments a longer term fixed rate may be preferable.
First time buyers who are finding getting onto the property ladder almost impossible will find more creative products available as lenders are looking for ways to help them. There are now some new 100% plus mortgages allowing First Timers to buy even with small savings, though we would always suggest caution and specialist advice before entering into these type of deals.
July 2007
