The mortgage market. Just where do you start? Well, eternal optimist that I am, let’s kick off by looking at all the positives. There has been a glut of good news recently and the overall mortgage landscape is massively improved relative to even three months ago — and that’s a fact, not the deluded belief of a broker on the back foot.
For starters, loan rates are pretty much back to where they were before the credit crunch hit. Indeed, at the time of writing, in late August, the average 2-year fixed rate according to Moneyfacts was 6.59%, only marginally higher than the 6.56% available back in August 2007.
Better still, it’s now possible to get tracker rates as low as 5.54% and fixes at 5.49%, which is really not bad at all. In fact, if you are happy to pay a higher fee you can get fixed and tracker rates from 4.99% !
What’s clear is that the lenders are starting to lend again, and are lending competitively, which is essential if the wheels of the property market are going to start turning.
Admittedly, average arrangement fees are higher, lending criteria are a lot stricter — you’ll need an LTV of no more than 75% to guarantee the most attractive rates out there — and the number of available products are far fewer (in August there were some 3700 mortgage products available, compared to over 13,000 in August last year).
But overall the number, competitiveness and type of products available have really come on in recent months, even in the large loans market. Things are back on track.
The official figures confirm this. While mortgage lending in July was 27% down on July last year, according to the Council of Mortgage Lenders, it was up 5% on June 2008, so there are concrete signs that the small revival we are talking about really is happening. Confidence is returning.
I also genuinely believe that the bottom of the property market is in sight, if we’re not already in it, that is. At Cobalt Capital, we work with many large-scale professional landlords and portfolio property investors and the vast majority of them are either actively buying or preparing to do so.
These people, and I’m with them, say the bottom will extend from now until maybe March of next year.
The endless doom and gloom in the media over the past 12 months has actually had one good side effect. The near histrionic press coverage we’ve had may well have brought the downturn — and the bottom — along quicker than otherwise may have been the case.
People’s confidence and way of thinking have been changed so quickly that the market found a new balancing point sooner. The result is that people, specifically professional investors, are already starting to buy back in, and at attractive prices.
But despite all the good news on the mortgage front, we’re not out of the woods yet. The main problem right now is the wider economy, which is falling prey to stagflation. Stagflation is that ghastly situation where inflation goes up — it’s likely to hit 5% in the not too distant future — at the same time that the economy contracts. George Buckley, an economist at Deutsche Bank, announced in late August that “the figures are very weak and suggest the UK economy is already in recession”. May others are saying pretty much the same and that things will get worse, as unemployment and corporate insolvencies increase. The storm has spread beyond the property and mortgage markets.
But hopefully the Monetary Policy Committee will be able to avoid having to hike rates to control inflation. The oil price is coming back down while the caution of consumers is reining back inflation of its own accord. Many experts predict inflation will peak later this year then gradually begin to fall back to its 2% target, without the need for monetary action. This may even pave the way for a rate cut earlier this year or early next, which suggests trackers should be the product of choice.
My own view is that UK banks have been through the worst and while any more bad news from across the pond will have a short-term effect on the mortgage market here, it will not ultimately alter the course of recovery we are seeing. We all knew deep down that property prices were too high, but there is still one key factor that will prevent them from falling too low: a massive shortage of homes, which is being exacerbated each day by the dire state of the house building market.
All in all, we need to communicate the many positives out there, the availability of competitive new mortgage products to their clients, and point out that now really is a time of opportunity. If people wait for the media to declare the bottom, they will have missed out on it.
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