25May

ECONOMIC NEWS MAY 2016

Newly released figures from the Office for National Statistics (ONS) show that industry in the UK has fallen back into recession. It shrank for the second quarter in a row from 0.6 per cent in the last three months of 2015 to 0.4 per cent in the first quarter of 2016. The ONS say that together, manufacturing and construction are the major components causing the overall slowdown in economic growth. Manufacturing production fell by 1.9 per cent in the first quarter compared to a year ago and is the largest fall since 2013, while construction output fell by 1.9 per cent over the same period and by 1.1 per cent from quarter four of 2015.

The ONS has also reported that the trade gap has widened to £13.3 billion in the first quarter of 2016, the deficit having increased by £1.1 billion from £12.2 billion the last three months of 2015. This was due to imports of mechanical machinery, cars, clothing, jewellery and footwear rising by £1.9 billion, while exports rose by only £500 million, led by chemical products. Analysts say that UK exports have been hampered by only moderate global demand, while sterling has been strong, particularly against the euro.

At its most recent meeting, the Bank of England’s Monetary Policy Committee (MPC) voted to maintain interest rates at their historic low of 0.5 per cent. In the Committee’s assessment of the health of the UK economy, it opined that a vote to leave the European Union (EU) would pose a significant risk. The Governor of the Bank of England, Mark Carney, has said that in the light of the Bank’s responsibility for the UK’s financial stability, it would be wrong for the Bank not to give its considered view.  

Meanwhile, the Confederation of British Industry lobby group has cut its economic forecasts. It now says that the economy will grow by 2 per cent in 2016 and 2017, down from its previous forecast of 2.3 per cent and 2.1 per cent respectively. The cuts are a reaction to uncertainty over global growth and the outcome of the EU vote but the revised figures reflect an assumption that the UK will stay in the EU.

According to data from the website Rightmove, April saw an increase of 11.5 per cent in the number of rental properties being listed. This marked rise is believed to be due to the large number of landlords who scrambled to buy homes to let before the Stamp Duty deadline at the end of March. Research conducted by investment firm Property Partner, which looked at 90 towns and cities across the UK, showed that the supply of properties to let went up in 82 per cent of them, Worcester seeing a surge in rental properties of nearly 50 per cent.  

25May

Tracker mortgages

Until recently, financial commentators had predicted that the UK was likely to see an increase in the Bank of England Base Rate this year. A combination of factors however (including weaker economic growth and some turbulent activity in the stock market) has resulted in a re-evaluation of the forecast, and expectations for the first hike have now been pushed back out.

This has provided some scope for fixed rate mortgages to come down a little further. For those that feel rates will stay low, or are looking for a greater degree of flexibility, it could also lead to more interest in tracker mortgages. 

A tracker mortgage is a type of variable rate that follow the movements of another rate (usually the Bank of England Base Rate), typically for an initial period of 2-3 years, or even for the lifetime of the mortgage. The variable nature of the payable interest rate also means that monthly payments can go up and down, so it is not suitable for everyone. 

Some analysts have even raised the question of a potential cut in the Bank of England Base Rate, but over recent years several lenders have applied a collar to their variable deals, so borrowers need to be aware that their payments might not fall if rates do come down any further.

Our client contacted the mortgage service for the Guild of Professional Estate Agents looking for advice when purchasing a new family home. Feeling that interest rates were unlikely to increase significantly over the next couple of years, but comfortable that he could afford the monthly payments if they did begin to rise, the client was interested in the most cost-effective tracker mortgage. 

In addition to a competitive rate, flexibility was key, as the client intended to pay a lump sum off the mortgage in approximately 12 months time. After discussing these requirements, his mortgage adviser recommended a 2 year tracker deal with a major high street lender, which had no Early Repayment Charges at any time. This meant no restrictions on overpayments, and the freedom to move to a new deal if the client’s circumstances changed or rates began to increase.


Guild Mortgage Service, Provided by London & Country Mortgages


25May

Is the 100% mortgage back?

One of the big challenges for first time buyers has been in pulling together a deposit, especially when facing rising house prices in many areas.  

The credit crunch led to significant tightening in lending and as a result the number of deals on offer to those with a small deposit dropped dramatically.  There was barely a handful available at one stage but that has improved in recent years, especially after the introduction of the Help to Buy guarantee.

As a result the range of options for those with a deposit of only 5% has improved but lenders have shown little appetite to offer 100% mortgages again.

Barclays caught the headlines recently with the launch of its new version of the Family Springboard mortgage.  This extended the potential borrowing to as much as 100% of the purchase price but carries a crucial difference to the 100% mortgages (and even beyond 100%) of the peak of 2007.

The Barclays rate requires the parent or family member of the person buying the property to put 10% of the purchase price away in a separate savings account.  

The savings will earn interest and importantly remain in the parent’s name rather than having to be gifted to the child.  That could be of benefit to those that want to use the cash again at a later stage, perhaps to help a second child buy their first property.

However the savings act as additional security for the lender and the parents cannot draw on the funds for at least 3 years.  In a worst case scenario the lender could use the parental savings to cover any loss it suffered, so there is a risk to the cash.

Other deals work in a similar way but can use spare equity in the parental property as the added security that the lender requires.  That’s helpful where there isn’t a cash lump sum but does ultimately put the parental property at risk if things did go badly wrong.

Talk of a return to 100% lending is perhaps not quite the full story but these products do certainly show that lenders are trying to innovate in a competitive market. That can result in useful mortgage options as long as everyone understands the potential implications for them.


Guild Mortgage Service, Provided by London & Country Mortgages


25May

LAND REGISTRY DATA: MARCH 2016 (released 28 April 2016)

The March 2016 Land Registry data showed a fall in average house prices across England and Wales for the second month in a row with a drop of minus 0.5 per cent. Regionally, while London and the East saw prices rise by 0.2 per cent over the monthly period, all other regions experienced falls ranging from minus 0.1 per cent in the North West to minus 2.6 per cent in Yorkshire & the Humber.

On an annual basis, house prices have risen by 6.7 per cent across England and Wales, bringing the average house price to £189,901. London saw the highest annual increase in prices at 13.9 per cent and the average house price in the capital now stands at £534,785. The East and the South East also saw an annual rise in double figures at 10.7 and 10.3 per cent respectively, while the North East saw a fall of minus 0.7 per cent. In terms of property type, flats and maisonettes showed the highest annual increase at 7.5 per cent and the lowest increase was seen in semi-detached properties at 6.1 per cent.

By county and unitary authority, the strongest monthly growth was experienced in Slough with an increase of 3.1 per cent, while the most significant monthly drop occurred in Redcar & Cleveland at minus 3.5 per cent. In total, 33 counties and unitary authorities showed a fall in prices over the month. On an annual basis, Slough also had the greatest increase in prices with a movement of 22.1 per cent, while ten counties and unitary authorities experienced a fall, the greatest being Neath Port Talbot at minus 4.3 per cent.

Of the 36 metropolitan districts, Sunderland saw the highest monthly price increase at 1.6 per cent, while 22 districts experienced a fall, the greatest being Liverpool and St Helens each with a movement of minus 1.7 per cent. Coventry saw the largest annual price increase at 8.5 per cent, while three districts experienced a fall, the greatest being North Tyneside at minus 2.3 per cent. 

Of the London boroughs, Brent showed the highest monthly price increase at 2.8 per cent, while Hammersmith & Fulham saw the greatest monthly fall at minus 1.3 per cent. Lewisham had the highest annual price rise at 19.9 per cent, while Kensington & Chelsea experienced the smallest annual increase at 4.2 per cent.

The volume of properties sold in January 2016 was 5 per cent lower than a year earlier in England and Wales and 14 per cent lower in London. Over the same period, the number of properties sold for more than £1 million across England and Wales as a whole and in London rose by 2 per cent. 

Month on month, the total number of properties sold across England and Wales fell from 73,326 in December 2015 to 54,254 in January 2016 – a drop of 26 per cent. However, the number of property transactions from October 2015 to January 2016 averaged 74,374 per month, compared to 73,744 over the same period a year earlier.


25May

Good news for older borrowers

For older borrowers, securing a mortgage from a high street lender has become something of a challenge in recent years, following the Mortgage Market Review and subsequent tougher underwriting criteria. 

With the population living longer however, and our working habits evolving as a result, there have been widespread calls for the mortgage industry to adapt their policies and do more to help what is considered to be a neglected area of the market. 

Rising house prices have meant that First Time Buyers are buying later in life, often in their thirties, and taking longer mortgage terms of 30 years or more to make their loans more affordable, so the requirement for lending into retirement is set to continue.

The good news is that mainstream lenders have now begun to respond to the growing demand for change. In recent weeks Halifax has announced a lift in the maximum age at the end of the mortgage term from 75 to 80, a move which was followed by Nationwide, which plans to increase its limit by 10 years to 85. 

There will of course be restrictions on lending – borrowers will have to prove that they have adequate income into retirement, and Nationwide has put a maximum loan of £150,000 in place, with equity of at least 40% required. 

Changes like this could open up options for many borrowers who are considered to be ‘mortgage prisoners’ – for example homeowners with interest only mortgages who wish to switch to repayment and require a longer mortgage term to make their loan affordable. 

Smaller building societies, such as National Counties – who can lend up to the age of 89, have had a more individual approach to lending for some time, but these most recent changes are being viewed by the industry as a step in the right direction for mainstream lending.


Guild Mortgage Service, Provided by London & Country Mortgages


Value My Property