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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
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