Recent measures introduced by the government’s Monetary Policy Committee are thinly veiled attempts to cool the blazing London housing market, according to one leading mortgage broker.
The Bank of England announced last week that, from October, lenders will be allowed no more than 15% of overall new lending at levels of more than 4.5 times income, something that will seldom effect UK homebuyers, according to Simon Butler of specialist broker Contractor Mortgages Made Easy.
“Throughout the UK, only 9% of new mortgages in quarter one of 2014 had a loan to income ratio of more than this, however the same figure for London was 19%. This is clearly an attempt to defuse the venomous cauldron that is the London property market, without actually directly addressing it.”
Anther proposal introduced by the Bank of England suggests that lenders should stress-test applications at an increase of 3% in pay rates over the next five years – more aggressive than suggested as part of the FCA Mortgage Market Review that assumed an increase of 1%.
“The area that will likely be affected most by this is Help to Buy. That’s the only area realistically that borrowers can obtain 4.5 times their incomes on mortgage funding, due to the lower risk attached; however with recent news from both Halifax and Nationwide, lenders themselves are looking to cool this particular avenue and so it’s likely that this will suffer” said Butler.
Figures released by the Nationwide House Price Index this week have revealed an alarming record for UK house prices.
“Average house prices year-on-year are up 11.8% to June 2014, although this is another red herring as the London bubble skews this significantly with an increase of 26%, making the average price now in excess of £400,000” continued Simon Butler.
“The tide is most definitely turning, buyers are worried about overpaying now more than ever before, and with the recent impact of affordability on mortgage approvals, people are right to be sceptical. What goes up, must come down; the market is simply not sustainable at current levels.”
With projected base rate rises in the coming months, ahead of a 2015 general election, now could be a sensible time to consider locking into a longer-term fixed rate, suggests Butler.
“While fixed rates having crept up over the past six months, the value is not apparent at first glance in a longer term fixed rate. Look a little deeper, however, as with affordability assessments now subject to far higher scrutiny on sub-five year deals, along with political jostling of the Base Rate; now is certainly the time to seek specialist help to evaluate the options of locking into long term rates.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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