The Bank of England has again decided to keep the base rate at 0.5%, as they continue to see the impact of earlier government initiatives to kick-start the UK housing market.
Contractors with low deposits have been reaping the benefits of the Government’s Funding for Lending scheme, which has prompted a surge in the availably of competitive mortgage deals for lower deposit products. The effects of the scheme were confirmed by a 38% increase in the number of low deposit deals available since last year when Funding for Lending was launched. Currently, there are now 443 mortgage products for those with a deposit of 5 or 10%, a figure which has more than tripled over the past year.
The scheme, which gives access to low rate finance in order to incentivise cheaper lending to households and businesses, is great news for any contractor who is unable to access large amounts of cash, and rates are now at their lowest for some years. The average rate on a five year fixed product at 90% loan to value now stands at just 4.92%, a substantial decrease in comparison to last year’s average of 5.60%. The average rate on offer to those with a deposit of just 5% has also dropped to 5.13%, down from 5.82% in July 2012.
However, whilst there are currently some fantastic opportunities for those with small deposits to cash in on competitive deals, experts predict that the bubble may soon be about to burst.
Swap rates, the rates at which banks borrow at and feed into mortgage pricing, jumped last month, which prompted numerous changes to fixed rate deals, with some lenders jumping off the fixed rate bandwagon altogether. Over the past few weeks, specialist buy to let lender Paragon pulled their range of fixed rate buy to let deals entirely. Platform Mortgages also acted upon the swap rate increase, upping their pricing on two and five year fixed rate deals by up to 0.68%.
Rate increases have also been implemented by a range of building societies, including Skipton, Newcastle, Coventry and Cambridge. Contractor friendly mortgage lender Halifax have also announced rate on increases of 0.2% on selected fixed deals. Whilst other lenders are currently opting to ‘ride the storm’ of swap rate increases, experts predict that deals may not be as competitive in the near future as swaps appear to be flat lining at higher prices.
As the tide begins to turn on fixed rate deals, there has also been a significant amount of negative speculation against schemes designed to help those with lower deposits onto the property ladder. Experts predict that the Government’s Help to Buy scheme, introduced as part of the April 2013 budget, could have unintended consequences. The scheme, described by experts as ‘reckless’, has prompted predictions that the average house price could rise to as much as £300,000 by the end of 2015, as public funding is used to incentivise lending to those who would be seen as a high risk without the help that the scheme provides.
Former Bank of England Economists said that property prices would remain relatively stagnant whilst housing remained unaffordable to many people, but forecast that falling values would be inevitable if prices rose as predicted by almost 30% on the current UK average of £233,000. Commenting on the scheme, Vince Cable said "I did warn about it, and I am worried about the danger of getting into another housing bubble.“
What seems clear from recent revelations is that contractors with a small deposit need to act fast if they want to cash in on competitive deals. If the market changes as predicted, contractors could lose out on some great opportunities to invest in property.
Article By: Taj Kang, Business Development Director at Contractor Mortgages Made Easy
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