Mortgages Cheapest for 14 years

3rd September 2013

Halifax reported that the percentage of disposable income required by home owners to fund their mortgage has dropped to its lowest level since 1999. The number is currently 27% compared to 48% in 2007. As a comparison, the average over the last 39 years is 36%.

The main reason for the reduction is the highly competitive mortgage market, which is offering some of the best rates even seen in the UK. The Bank of England has maintained a minimum rate of interest of 0.5% now for several months, and also provided funding to the major lenders via quantitative easing. This ‘cheap money’ was of course designed to be accessible only if a certain percentage is passed on to the public in the form of mortgages and loans, although many experts feel that the banks have in reality retained a large proportion to rebuild their balance sheets. However, banks are now able to start to extend their risk portfolio, and this includes lending to domestic households and first time buyers.

This news is especially surprising after a period of wage stagnation where many people have seen their real disposable incomes fall, as inflation exceeded Government targets and salaries failed to keep up. House prices have also started to rise again in many parts of the UK. So for people new to the property market, this fierce competition amongst lenders is a welcome relief.

The brighter outlook for buyers and home owners is likely to continue, as we anticipate the arrival of the ‘Loan To Buy’ scheme: commencing in February, this allows first time buyers to borrow 75% of their deposit form the Government as a loan, effectively therefore only potentially requiring a five per cent deposit to purchase their first property. The scheme extends to all types of housing (not just new build), and is widely expected to increase demand and potentially also prices, although only modestly.

With the new scheme, there is a concern that ill-informed, unmotivated,or greedy vendors could significantly increase their price expectations (which is likely to secure the same outcome – ‘no sale yet’: given that nobody was prepared to pay the previous, lower price); but for most sellers, the outcome should be an increase the pool of potential buyers and a little competition,which will help them secure a quicker and more profitable sale. Leading agents across the UK are already reporting higher levels of activity, and a shortage of good stock for sale and rent.

Therefore, if you have been deliberating over ‘when this is a good time to sell?’, then a stronger Autumn market, increased demand from applicants,and more affordable finance seems like an attractive combination to try to make a move.

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