A preference towards fixed rate options has been consistent in the market for the majority of 2013, and recent research has noted that as many as 9 out of 10 purchasers are now taking this interest rate option. Since the Mortgage Advice Bureau began tracking rate preferences in 2009, the level of borrowers utilising these options has risen to the highest recorded level.
During September, as many as 93 per cent of borrowers took out a fixed rate option, up from 86% the same time 12 months ago. Towards the end of 2012, the Governments Funding for Lending scheme was in its fledgling stages, and many market experts had predicted that the benefits of the scheme would begin to show in the market at the busiest stage of the following year. As it stands, the scheme has had a positive effect on lenders pitching their fixed margins, with a preference in this area seen as the focal point for many banks and smaller lenders through 2013.
Average rates have tumbled month on month, with the current three year fixed margin dropping by 0.14 per cent from August, taking rates below 4 per cent for the first time in 6 years. Two year deals have reduced to a level that now makes these options £90 cheaper than those available in 2012.
Remortgage rates have also been widely affected by reductions and the number of borrowers choosing the security of a fixed rate has increased vastly on the same time last year. In September, 91 per cent of borrowers opted to fix, up from 79 per cent during the same period a year ago.
The head of lending for the Mortgage Advice Bureau, Brian Murphy, felt that lenders were not yet close to altering the trend, stating: “Thanks partly to government funding and support, affordable mortgages have now been in vogue for much of the year and the competition to win over the house-buying public should mean that conditions continue to improve in borrowers’ favour.”
Amid the fervent rise in activity across the home buying sector in recent months, many market experts have suggested that other Government schemes such as the Help to Buy proposition could destabilise the market for the future. The argument made suggests that house prices will continue to artificially inflate, under the guise of buoyancy, but actually due to opportunistic vendors pushing values above realistic levels.
Claims have been made that while the schemes introduced by the Government are meant to enable many struggling buyers to get onto the ladder, these will in fact put prices out of touching distance. However, in some quarters the fears of a potential bubble are being scoffed at, with the suggestion that these proclamations are hysterical at worst.
A group of economists called the Item Club, being sponsored by the accountancy group EY, are predicting that house prices will double in 2014 from the estimate of 3.5 per cent by the end of 2013 to 6% the following year.
The group strongly denounced any suggestions that the Help to Buy scheme should be pinpointed as a potential hindering factor for market growth, as they noted that consumer spending in general is currently outstripping a rise in the average UK income. The suggestion is that trade, export and business lending also need to improve to raise economic growth, and while the housing sector has a large part to play in moving this forward, it is not the lynchpin of recovery.
Peter Spencer, the chief economic adviser for the Item Club, commented: “Despite recent criticism of these initiatives, the chances of seeing another housing market bubble are extremely slim. House prices and transactions are only just recovering from the credit crunch and will be paltry in comparison to those of a decade ago.”
Spencer also noted that factors other than the housing sector have a part to play in furthering UK economic improvements: “The boost from the consumer has pushed the UK economy into a progressively higher orbit, but this now needs to be supplemented by a thrust from the engines of export and investment. Otherwise, there's a real risk that the recovery will falter in the face of the sustained pressure on real incomes from high prices and low wage inflation.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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