On the twentieth anniversary of mortgage rates hitting a record 15.4%, are rates on the way up?
It’s a tricky task to predict the exact point, or even a close estimate, of when rates may rise. However, with the current base rate at 0.50%, it is fair to assume the future for rates can only be up.
The consensus from economists is that when the Bank of England does start to increase base rates, they will do so cautiously with an eye firmly on any recovery, desperate not to douse the flames of growth.
However as those homeowners who held a mortgage 20 years ago in March 1990 will testify, mortgage rates can climb faster than anyone thought likely, and had fixed rate mortgages been widely available, they would have been a welcome antidote to the record rates of 15.4%.
Although no one is arguing that interest rates are likely to hit double figures anytime soon, some economists are estimating that Bank of England base rates could reach 6.5% over the next 5 years.
Predicting the future level of bank base rates is one thing, but the future path of mortgage rates holds an added level of complexity. None of us have ever lived through a period of such enormous financial support being offered by a Government, and in turn withdrawn.
The reality is over the next four years, the £300 billion in support to lenders in the form of the Special Liquidity Scheme and Credit Guarantee Scheme needs to be repaid. It is hard to imagine that this process will not add to volatility in mortgage pricing for homeowners.
Martijn van der Heijden, head of mortgages at HSBC commented: “The next few years are going to be difficult to predict in terms of mortgage rates and some volatility for borrowers may well be unavoidable. The message for borrowers is that if you couldn’t afford an increase of up to 3% on your mortgage, you should seriously look to fix your payments.”
Over the first seven years of this decade mortgage borrowing grew by £180 billion more than retail deposits. If retail deposits cannot replace this funding gap and wholesale markets do not open up sufficiently, lenders will be left facing a choice of higher funding costs or the need to reduce lending.
Although mortgage standard variable rates may look attractive at the moment, they are one of the few pressure valves lenders can turn to when facing higher funding costs or the need to reduce lending. Both could be a real possibility for the next few years.
Source – Mortgage Introducer
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Almost half of Britons are jeopardising their financial futures by neglecting to take out insurance to cover loss of income through illness or death, new data shows.
Twenty four million people are thought to have no cover in place for such an event, according to research conducted on behalf of Friends Provident by 72 Point.
Those without cover who said they had considered taking out an insurance policy to provide if the main earner of a household was unable to work or died, would be underinsured by an average of £14,500 a year.
A third of people estimated that they could live on less than 35% of their take home pay if they suffered a serious injury or illness. That equates to just £171 per week for an average earner – £300 less than the current average household expenditure of £471.
“It is time people took control of their future and looked at this in a responsible way, instead of burying their heads in the sand, especially in today’s environment. The shortfall in protection of £14,500 per year shows there is a huge opportunity for both advisers and insurers to educate people,” commented Ed Stuart-Brown, head of protection sales for Friends Provident.
“Ignorance is not bliss, it’s irresponsible.” Of those who have policies in place, over half (53%) said they were unaware of how much would be paid out if they made a successful claim. Mr. Stuart-Brown said people should ensure they have made adequate provisions in case the unexpected should happen.
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The UK housing market is improving at a greater pace than many European counterparts, new figures have revealed.
House prices rose by 1% in the UK overall last year, according to the Royal Institution of Chartered Surveyors (RICS), and by 10% since the market low point in April.
By contrast, countries with poorly performing markets like Spain, Greece and most of Central and Eastern Europe, especially the Baltic States, saw heavy falls of between 27% and 53% in 2009. Norway enjoyed the most pronounced recovery last year, with the average price of property increasing by 12%. Neighbouring countries, Finland and Denmark, reported price growth of 8% and 7% respectively.
Source – eMoneyfacts
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The amount of money banks and building societies are willing to lend to home owners is being based on future interest rate rises for the first time, it can be disclosed.
Lenders are so concerned about the likelihood that rates will rise they have placed extra restrictions on borrowers. If the Bank of England raises interest rates from 0.5 per cent, which many analysts predict, lenders are likely to follow suit with their standard variable rates – the rate which borrowers automatically slip onto at the end of their initial deal.
Despite an average two year fixed rate mortgage being 4.75 per cent, some high street lenders are basing their affordability calculations on almost double this amount.
Source – Daily Telegraph
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House prices increased again in January and have risen by more than 5% in the last 12 months, figures from the Land Registry have revealed.
The positive January change of 2.1% in the average price of a home in England and Wales is the eight month in succession that the index has registered an increase. Since January 2009, the average value of property has recorded a rise of 5.2%. “While not all regions are recovering at the same rate, it is clear that overall prices are increasing,” said the Land Registry.
Somebody purchasing a home in the UK can now expect to pay a figure of £165,088 on average. On an annual basis, the region that registered the most significant improvement was London, at 10.5%.
Source – eMoneyfacts
Yorkshire Building Society, the UK’s second-biggest mutual, plans to double its mortgage lending this year, signalling a positive outlook on the housing market.
The company, which is set to complete its acquisition of Chelsea Building Society on April 1, said its gross mortgage lending fell sharply in 2009 to £900m, from £2.5bn. The society made a pre-tax loss of £12.5m for the year to December 31, down from a profit of £8.3m in 2008, as the lender increased provisions on mortgage losses from £25m in 2008 to £59m last year.
Iain Cornish, chief executive, said its decline in mortgage lending last year reflected a more cautious approach to lending as well as low demand for house- purchase loans.
Source – Financial Times
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Skipton is to merge with Chesham Building Society, creating a Society with over £15bn of assets and a 92-strong branch network.
Subject to confirmation by the Financial Services Authority (FSA) and approval by Chesham members, the merger is expected to become effective on 1 June 2010. Full details are being communicated to Chesham members next week. Skipton will be writing to all its members with more details as part of its AGM magazine mailing in mid March.
The two societies share a similar ethos, centred on offering outstanding service to their members and supporting the communities in which they operate. Chesham already has a working relationship with Skipton as it uses an IT platform provided by a subsidiary within the Skipton Group. As well as providing three new branches for members, the merger will further improve Skipton’s capital position.
Skipton has committed to retaining Chesham’s three branches for 12 months from the date of merger, after which they will be subject to the Society’s ongoing branch review process. There will also be no compulsory redundancies among branch staff as a result of the merger. Chesham members will be able to transact in any branch of the enlarged Society from merger date.
David said:
“We have always made it clear that we would consider further merger activity where it is in the best interests of our members. We look forward to welcoming Chesham’s members on board and believe this union will provide positive product and service benefits for the combined customer base of the enlarged Society.”
Paul Kilbride, Chief Executive of Chesham Building Society, added:
“The Chesham Board firmly believes that the clear benefits of being part of a larger building society with broader funding sources and a larger capital base, while preserving the current levels of customer service and offering an extended range of good value products, are in the best interests of its members.
“A merger with Skipton will result in Chesham’s members having access to Skipton’s large branch network, its postal and telephone investment service, internet facilities, and to a broader range of products and services, from the time when the merger becomes effective.”
Source – MyIntroducer.com
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