14/07/2007 by Damian.

As Less2sell Online estate agents have reported previously, interest rates are on the rise.  The Bank of England have increased the interest rate 5 times (see our historical interest rate page for actual increases) since August 2006 to try and controll the UK inflation.

 So, does it make sense to avoid the pain of future rate rises by locking yourself into a fixed-rate mortgage now? This question is extremely difficult for Less2sell Onlline Estate Agents to answer, because it depends on your own view on the future direction of interest rates, your personal attitude to risk, how affordable your monthly repayments will be, and so on.

If you are comfortable with knowing how much you mortgage is going to cost you per month for a pre-arranged period, then a fixed mortgage should be right up your street. However, if you think that interest rates are near their peak (some analysts think that 6% is the peak) and will come down over the next year, then a variable-rate deal may be a better bet.

I recently came across an article writen by Cliff D’Arcy of www.fool.co.uk who in order to gain some insight into the ‘fixed versus tracker’ debate decided to investigate the actions of its own users.

Each month, thousands of people apply for home loans via the Fool’s award-winning, no-fee, whole-of-market mortgage service.  The outcome from the investigation was as follows:-

• More than two out of three people (68%) took out a fixed rate; and
• Of the remainder (just under a third of the total), 31% took out tracker mortgages, with the remaining 1% taking out other variable-rate home loans, such as discounted variable, capped and low standard variable rates.
• Of the people who took out fixed-rate home loans, they found that:
• Over seven in ten (71%) took out a two-year fix;
• Nearly one in five (19%) opted for a five-year fix;
• One in fourteen (7%) went for three years;
• One in fifty (2%) pushed their fix out to a decade; and
• The remaining 1% took out fixed rates lasting for between one and 25 years.

So, the conclusion is that if you’re one of those people who feel comfortable following the herd, then two- or three-year fixed-rate home loans seem to be the flavour of the day. However, if you are a risk taker and want to gamble on interest rates coming down (as I am!) then a tracker mortgage might be preferable.

Which ever option you choose remeber that your home may be repossessed if you do not keep up with repayments.

Related Links

UK Interest Rate Rises by 0.25%

Beginners Guide to Predicting the Outlook for the Housing Market

UK Housing Market Shows Signs of Slowing Down

Mortgage Bills Set to Increase for 2.8 Million Borrowers.

UK Top Lenders Remove Fixed Rate Deals

Historical Interest Rate Decisions

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05/07/2007 by Damian.

The Bank of England has raised the interest rate by 0.25% to 5.75% today.

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04/07/2007 by Damian.

Everyone who is involved with property knows that it is extremely difficult to predict its future.  So why am I bothering writing a post about it!  I would like to impart a bit of knowledge on the 5 key drivers that affect the market.  Even with these key drivers, it is still difficult to estimate what the future hold for property but it will arm you with important information in order to make a sensible and informative decision.

Although my attempts at predicting the outcome of the housing market have rarely been correct, I still keep an eye on a number of demographic, financial and socio-economic factors which are believed to influence demand for housing. In alphabetic order, here are five of the various indicators which I monitor in an attempt to get a feel for the UK property market:

1. House price indices

Although I take house-price predictions with a huge pinch of salt, I do study historical changes to house prices in order to take the temperature of the UK housing market as a whole. However, several different organisations produce house-price indices (you’ll find seven listed here), so it’s hard to know which index to track!

2. Inflation

The Consumer Prices Index (CPI) is the government’s target measure of inflation (which is the tendency of consumer prices to rise over time). Although the CPI doesn’t include housing costs, it’s still worth keeping an eye on. That’s because the Monetary Policy Committee (MPC) of the Bank of England has a target to keep CPI around the 2% mark. When inflation markedly under- or over-shoots this target, the MPC votes to lower or raise the Bank’s base rate in order to return CPI to its goal over the medium term.

You can follow the CPI here:  ONS inflation statistics

3. Interest rates

As the CPI measure of inflation has been above its 2% target for quite a while, the Monetary Policy Committee has started raising interest rates. Since last August, the MPC has raised the base rate four times, each time by a quarter-point, increasing the base rate from 4.50% a year to 5.50%.

The next MPC meeting is this week, and as CPI is currently at 2.5%, it’s a done deal that the base rate will be hiked to 5.75% on Thursday, in my opinion. Of course, a rising base rate is bad news for homeowners and homebuyers, because it translates into higher mortgage interest rates, which mean higher monthly repayments for borrowers who don’t have fixed-rate home loans.

You can follow the Bank of England base rate here: Bank of England MPC decisions

4. Savings ratio

I like to keep an eye on the savings ratio, which measures the proportion of our take-home pay which we save. Generally speaking, when house prices are rising fast and consumer optimism is high, the savings ratio is low. Conversely, when the future looks tough, we tend to save more as a hedge against upcoming financial difficulty.

The savings ratio has collapsed to a 47-year low of 2.1%, which is just a quarter of its long-term average.

You can follow the savings ratio here: ONS savings statistics

5. Unemployment

Of course, when people are out of work and struggling to make ends meet, buying property is one of the last things on their minds. On the other hand, when unemployment is low and demand for workers is high, this puts upward pressure on wages, which usually translates into house-price stability or inflation. The unemployment rate has been on the rise since 2004, and presently stands at 5.5% of the ‘economically active’ workforce, but this is almost half what it was in the recession of the early Nineties.

You can follow the unemployment rate here: ONS employment statistics

Of course, the factors which impact the housing market don’t stop there: I also have consumer confidence, housing transactions, immigration, mortgage lending, wage increases, etc. on my watchlist.

Finally, I’ve no solid rules on how to weight each of these factors based on its impact on demand for housing. Indeed, I suspect that this task is all but impossible, given the massive scale of the UK housing market and the complex interplay between these variables. Anyway, when all’s said and done, demand for housing usually depends more on local factors than national trends.

Related Links

Guide to Choosing an Estate Agent

Seven Simple Tips to Increase Your Chances of Selling Your Home

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02/07/2007 by Damian.

U.K. house prices rose in June at the slowest pace since December as higher interest rates deterred buyers, according to the latest figures.The average cost of a home in England and Wales increased 0.3 percent from May, to £176,100 , matching the rate of increase in December 2006.

A survey conducted by Bloomberg News Survey stated that the Bank of England will raise interest rates on July 5 from the current six-year high, according to 53 out of 60 economists surveyed.  If this is so then the housing market will continue to slow down.

Less2sell estate agents have seen faltering demand for properties resulting from an increases in interest rates and the rush to market properties before 1st June in anticipation of the introduction of Home Information Packs. 

A fifth interest -rate increases (which we at Less2sell feel is 90% possible) since August to 5.75 percent and the prospect of further rises are keeping prospective buyers out of the market.

The annual rate of growth fell to 6.4% from 6.7% the previous month. We at Less2sell are predicting this rate to continue to decline and end up arond 4-5% in December.

With UK inflation at 2.5% (target 2%) and the fact that we only just escaped a rise in June, an increase in interest rates by 0.25% in July is almost guaranteed.

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01/07/2007 by Damian.

Almost three million home owners will face severe increases in mortgage payments when their current fixed rate deals expire.

The council of mortgage lenders estimates that 1.3 Million borrowers took out fixed rate mortgages in 2005 and a further 1.5 million did the same in 2006.  Most of these ‘deals’ will lapse within 18 months. 

Someone paying 4.75% on a fixed deal may end up paying 8% on teh standard variable rate by the end of 2007.  This would see the monthly bil on a £125,00 mortgage rise from £681 to £926 per month.

This problem is not confined to both the overstretched home owners or the housing market in general.  It will create problems far beyond the estimated 2.8 million borrowers on fixed deals as it could affect the UK economy. 

Borrowers unable to meet their mortgage payments and rising interest rates triggered the housing crash of the early 1990’s - these two factors are ‘flirting’ with each other again but will the outcome be the same.

Anyone who thinks they may have financial difficulties in the future should talk to thier lenders at an early stage to discuss steps to improve the situation.

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25/06/2007 by Damian.

Two of the country’s biggest lenders have pull their fixed rate deals.

Halifax has today hiked the rate on its top two-year fix from 5.49 per cent to 5.79 per cent, while Abbey’s deal has broken the 6 per cent barrier, rising from 5.99 per cent to 6.19 per cent last week.

Louise Cuming, head of mortgages at Moneysupermarket.com, a comparison site, said: “Borrowers needing the stability of a fixed rate product should reserve their next deal now if their mortgage term is coming to an end. Fixed rates appear to be going up – and fast.”

Fixed rates have been going up because the City expects the Bank of England to raise rates by another quarter point to 5.75 per cent this summer – possibly at next week’s meeting – and some commentators think they could even hit 6 per cent before the year is out.

Interest rates have already gone up four times in the past ten months from 4.5 per cent to 5.5 per cent, adding £166 a month to a £200,000 interest-only mortgage.

More than 800,000 borrowers face a £1 billion ‘payment shock’ in the coming months when fixed rates they took out two years ago end.

In summer 2005 the best fix was at 4.15 per cent but now borrowers will struggle to find fixes below 5 per cent.

George Buckley, chief UK economist at Deutsche Bank, said: “Homebuyers are in for a shock when their deals come to an end. Two years ago fixed rates offered outstanding value and the number taken out ballooned. Fixes are now around 1.1 percentage points higher than they were then, and are likely to rise further still.”

“The sharp rise in payments faced by borrowers will almost certainly put downward pressure on house price inflation and could also slow consumer spending as households struggle to absorb the extra costs”.

Portman has a two-year fix at 5.29 per cent with a £1,499 fee. You must have a 5 per cent deposit. Meanwhile, Stroud & Swindon has a five-year deal at 5.59 per cent, while Newcastle has a ten-year scheme at just 5.5 per cent.

Cuming said: “Borrowers may not be aware they can reserve a mortgage at the current rate for up to six months.”

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