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Home buyers set to see sustained period of low borrowing in UK
Home buyers in the UK, including buy to let investors can look forward to a sustained period of low borrowing rates, according to housing market lenders, due to the lowest ever bank base rate. The decision by the Bank of England to reduce the interest rate to 0.25% and the possibility of it going even lower, brings to an end the longest period of no change in rates since the War/post-War years of 1937 to 1951. Bank rate was cut from 1% to 0.5% in March 2009, and remained there till it was cut again last week. The Council of Mortgage Lenders (CML) points out that mortgage rates have fallen significantly over that period. The average mortgage rate over that period has fallen from 3.8% to 2.9%. It also points out that the bank rate is not the only influence. Funding costs, levels of competition, targeted levels of profitability, and an assessment of current and future market conditions to price appropriately for risk are also relevant factors. So it also follows that a rate cut does not automatically feed through on a like for like basis to mortgage rates. Future pricing will depend on all the factors above and is a matter for individual lenders. Around 50% of borrowers are currently on fixed rates and will therefore see no immediate impact on their payments in any case. Of the remaining 4.9 million home owners with a variable rate mortgage, over 1.5 million have a tracker rate mortgage and these borrowers may automatically see a rate reduction depending on their mortgage contract but some will have a lower level below which rates cannot fall. For new borrowers, mortgage pricing is extremely competitive and set to remain so. However, it is worth noting that the Bank has also been urging borrowers to plan ahead for the prospect of higher rates in the future and the CML said consumers should not assume that just because rates are low now, they will necessarily stay that way for a prolonged period. Recently, fixed rates have been accounting for about 90% of new lending, and while this is partly because they have been priced attractively, it's also likely to reflect a consumer appetite for certainty about outgoings. CML director general Paul Smee believes that some hesitation on the part of consumers thinking about buying property is understandable against the backdrop of recent political uncertainty. However, mortgage lenders are well capitalised and resilient and open for business to lend, in line with consumer demand as and when confidence levels bounce back. ‘Since the last change in official rate in March 2009, the average mortgage rate has already fallen from 3.8% to 2.9%. This confirms that bank rate is not the only influence on mortgage pricing; we feel that the mortgage market is at present well capitalised, resilient and open for business. Housing market fundamentals are sound,’ he explained. ‘So, we see the cut as a wider reaction to the economic effects of… Continue reading
UK house prices down by 1% month on month, too early to judge Brexit effect
House prices in the UK fell by 1% between June and July, taking the average price to £214,678, according to the latest index which also shows that overall growth is slowing. In the three months to July prices were 1.6% higher than in the preceding three months, above June’s 1.1% increase and similar to the rates recorded in April and May of 1.5% but it significantly lower than in February and March. The data from leading lender the Halifax, also shows that prices in the three months to July were 8.4% higher than in the same three months a year earlier, unchanged from June but the lowest since July 2015 when it was 7.8%. The month on month decline largely offset the 1.2% increase in June, but Martin Ellis, Halifax housing economist pointed out that month on month changes can be erratic and monthly falls often occur within an upward trend. He explained that it was the third monthly fall so far this year and was smaller than February’s decline of 1.5% and the quarter on quarter change is a more reliable indicator of the underlying trend. The number of first time buyers increased by an estimated 10% in the first six months of 2016 compared with the same period in 2015, according to the Halifax First Time Buyer Review. There were an estimated 154,200 first time buyers in the first half of 2016 compared with 140,500 in the same period last year. This was more than double the market low in the first half of 2009 when it was 72,700. Nonetheless, the number of first time buyers in the first half of 2016 was nearly a fifth lower than in 2006. ‘There are signs that house price growth is slowing with a deceleration in both the annual and quarterly rates of increase in the past few months. Nonetheless, the current rates remain robust. Overall, it remains too early to determine if there has been any impact on the housing market as a result of June’s EU referendum result,’ Ellis added. Alex Gosling, chief executive officer of online estate agents HouseSimple, also believes that too much should not be taken from the monthly figure. ‘There are so many factors at play right now, we're probably going to have to wait until September to get a clearer picture of how the housing market is coping with this headwind of political and economic uncertainty,’ he said. ‘Property transaction levels traditionally drop off during the summer months,’; he explained, adding that there have been a number of other factors impacting the housing market in recent months such as April stamp duty changes, the EU Referendum, and the cut in interest rates. ‘The Bank of England's decision to cut interest rates yesterday should definitely provide a stabilising effect on the economy. Whether that will be enough to inject the necessary confidence into the property market only time will tell. It will certainly provide a level of confidence… Continue reading
First time buyer property valuation activity increased after Brexit vote
Housing market activity in the UK has shifted in favour of first time buyers and remortgagors, in the first full month after the vote to leave the European Union, according to the latest research. Overall, July has seen the number of all property valuations fall 2% compared to the same month last year, says the latest monthly analysis from Connells Survey and Valuation, which reflects a slight cooling compared to June. ‘Judging the Brexit effect might take years but in the meantime the first full month after the vote already looks encouraging as change has mainly been confined to the mixture of activity, rather than the overall volume of valuations,’ said John Bagshaw, corporate services director of Connells Survey & Valuation,. The data shows that activity in the first time buyer and remortgaging sectors have driven July’s valuation market. There were 12% more first time buyer valuations in July 2016 than in July 2015. Meanwhile remortgaging activity also saw the same 12% annual rate of growth. ‘July was particularly good for those making their first step on the property ladder. Despite some widespread fears about Brexit, any negative impact on wages, employment or inflation has not materialised and first time are continuing to make the most of government schemes and are now boosted by even lower mortgage rates this summer. This is the same development that is proving a boost for remortgagors, also benefitting from a new wave of even better mortgage deals,’ Bagshaw explained. Those already on the property ladder looking to move home appear to have been slightly more cautious in July than those making their first step. Compared to the same month in 2015, home mover valuations have fallen in number by 8%. Similarly, buy to let activity has been relatively cooler in July than at the same point a year ago. The total number of valuations for buy to let purchases has now fallen by 41% since July 2015. ‘Buy to let activity is steady post-Brexit vote, even if at a level lower than last year. In fact this correction is not new, and mainly not as a result of referendum uncertainty. Since April, held back by the Government’s 3% Stamp Duty surcharge, some landlords are pausing for thought,’ Bagshaw explained. ‘Looking ahead, tax changes are increasingly factored in to landlords’ investment plans which forms a strong core of buy to let activity focused on the long term and a solid basis of future growth in demand for valuations from landlords,’ he added. Continue reading
