21.01.10 by Andrew Montlake
Homes At Risk As Inflation Surges?
One of the free London papers yesterday carried the headline above, (though without the all important question mark), and spoke in rather alarmist terms about a “mortgage time-bomb” after the sudden rise in inflation to 2.9%..jpg "Metro Newspaper - Homes at risk as inflation surges")
Whilst the Governor of the Bank of England Mervyn King tried to dampen this down with a fair dose of realism, after all many expected inflation to rise temporarily, the biggest monthly rise in inflation since 1979 has nonetheless come as a huge shock to many and does raise immediate questions over future Base Rate Policy.
The issues are very clear; many homeowners are benefitting from artificially low interest rates, (the key word to remember is artificially), which for more than a fair few is keeping the roof literally above their heads.
A relatively small rise in Bank Base now could have a larger, disproportionate effect on many households than the usual.
So where does this leave us all, especially when it comes to looking at mortgage rates?
One of my colleagues Rob Gill has been talking all week about a well-worn City phrase, “Buy the rumour, sell the fact.”
This is a way of expressing how prices react to rumours and predictions rather than the actual news itself. Unless the news is a genuine surprise, its impact will be reflected in the price long before the actual event.
A good recent example is the takeover of Cadburys, as although it has only been confirmed this week, the main move in the share price, (a staggering 37% in one day), took place last September when the “rumours” first surfaced.
The recent inflation spike has put “rumours” of a base rate rise firmly on the agenda, and expectations of a future rate rise, which we believe will happen this year, may soon be reflected in mortgage pricing.
I do believe there is a danger that some people may have followed the cheaper variable rate alternative when they should potentially have been thinking about fixing, and now is a great time to do this as both confidence and competition has been returning to the lending fraternity.
It is easy to become blasé about cheap tracker products and get sucked into the cheapest is best vacuum. The reality is rates are going to rise and margins on tracker products are still high.
The conversation with clients in these times perhaps should not just be around can you afford a 1% rise, rather over the next few years, can you afford a 2%, 3% or even more rise?
Most of the major lenders have been re-pricing their fixes downwards and rates are available from 3.39% for a 2 year fixed, (5.8% APR), 4.25% for a 3 year fixed, (4.6% APR) and 5 year fixes still available at under 5%.
Moreover, there has been more movement in the 75% plus Loan-To-Value, (LTV) bandings, with some competitive products now available at 80% and 85% LTV’s.
Monty’s Mortgage Blog
19.08.10
Mortgage Lending Up...A Bit
Today saw the release of the latest set of data from the Council Of Mortgage Lenders, (CML) stating that Gross Mortgage Lending rose by 5% in July compared to June, although this is still 3% down from July 2009.
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