Blog Archives

Halfway house for the financial crisis as lenders cut rates

28.06.2012

Although it feels as though the financial crisis has dragged on forever, the bad news is that we are not even halfway through it. So says Mervyn King, governor of the Bank of England, who has told the Treasury Select Committee that he does not expect the economy to recover until 2017.

The continuing problems in the Eurozone are behind his gloomy outlook, as Cyprus becomes the fifth Eurozone country to seek financial assistance. Spain has also had 28 of its banks downgraded by Moody’s Investors Service, including Santander, hot on the heels of the downgrades of Barclays, HSBC, RBS and Lloyds Banking Group last week. Meanwhile, official data shows that the government borrowed more than expected in May – nearly £18 billion compared with just over £15bn in May last year.

So what does this continuing turmoil mean for mortgages? If there is any good news, it is that the downgrades were expected so the money markets have already factored them in.

With Swap rates – the rate lenders pay to borrow from each other – falling significantly in the past couple of weeks, lenders should have some leeway to reduce margins. Indeed, several have reduced their fixed rates recently and we expect more to follow.

More money should also be available for mortgages via the Bank’s funding for lending scheme although it is not yet clear whether there will be a significant increase in mortgages available to those with modest deposits or whether lenders will continue to favour those with sizeable down payments. For this money to make a real difference to the mortgage market, lenders will have to do more lending to those with small-ish deposits.

Adrian Anderson
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Adrian Anderson

Falling inflation and funding for lending set to boost mortgage market

19.06.2012

With so many negative stories circulating regarding the economy, and in particular the Eurozone, it is encouraging to finally see a couple of positives. Today’s announcement that inflation has fallen to its lowest level for two and a half years shows that consumers have some respite from soaring prices, as well as strengthening the argument for another round of quantitative easing (QE). So far some £325bn of QE has been pumped into the economy.

The Consumer Price Index (CPI) fell to 2.8 per cent in May, down from 3 per cent in April, according to the Office for National Statistics. This is the lowest level seen since November 2009. The fall in petrol prices was behind the surprise drop.

Meanwhile, the Bank of England announced last week that it would offer £80bn to banks to encourage them to lend to individuals and small businesses, and pump a further £100bn of cheap credit into the UK economy over the next few months.

These moves should mean more money is available for mortgages – great news for anyone looking to take out a new loan or remortgage. It is not yet clear whether there will be a significant increase in funding for those with modest deposits or whether lenders will continue to favour those with sizeable down payments. For this money to make a real difference to the mortgage market, lenders will have to do more lending to those with small-ish deposits.

Swap rates – the money market rates lenders pay to borrow from each other – continue to fall, as it looks increasingly likely that interest rates won’t rise for the next few years. Indeed, a rate cut could actually be on the cards, which will again be welcomed by borrowers on variable rates.

On balance, these latest developments are encouraging for borrowers. But, as ever, it is important to seek advice before taking the plunge by speaking to an independent mortgage broker, particularly if you have complicated income streams or an unusual property.

Jonathan Harris
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Jonathan Harris