John Charcol Monthly Mortgage Index

The John Charcol Mortgage Index is published monthly, tracking three important statistics, based on mortgage business written by John Charcol.  The index is a leading indicator of trends being based on mortgage applications submitted to lenders, whereas figures reported by the Council of Mortgage Lenders (CML) and the Bank of England (BofE) are based on completions, which typically take place 2-3 months after the mortgage application is submitted.

The three statistics tracked each month are the percentage split:

• Between Fixed rates, Capped rates and Tracker/Discount rates*.
• Between Purchases and Remortgages.
• Of First Time Buyers compared to all Purchasers.

Last month over 10% of John Charcol borrowers opted to take out one of the most innovative products of the last decade, says Simon Collins Technical Manager at John Charcol, says that December was the best month so far for Hybrid mortgages.

“Borrowers have been reluctant to take longer term fixed rates when they know that variable rates are likely to remain low for the next couple of years at least. Yet at the same time they are anxious over longer term payment security, knowing that in 2 years time, fixed rates may well be significantly higher. The Hybrid is therefore the perfect product for those borrowers who want to take advantage of low variable rates now, while securing a fixed rate element at today’s historic low prices.

“The product is a longer term mortgage that is a blend of both tracker and fixed rates, and currently comprises a margin over the bank rate for the first two years of the mortgage, followed by a fixed rate for the final 3 years. Everyone knows that the bank rate will increase at some point, but the big question is when and how fast?”

More innovation needed

“The Hybrid is arguably the most innovative mortgage product we’ve seen in a good few years and so far is only offered in the intermediary market by Accord Mortgages. With the current stagnation in the housing market, and many high street lenders sticking obdurately to their traditional 2 year products because they have the lowest initial pay rates, it would be fantastic to see other lenders take up the mantle started by this novel product. It is ideal for First Time Buyers who want to take advantage of low pay rates now, but also have longer term security built in, and more widespread availability from lenders would almost certainly stimulate that end of the market. It really is the perfect product for the imperfect lending arena we continue to find ourselves in.”

Rates continue to rise

“Following on from the sharp increases in variable mortgage rates towards the end of 2011, this year we’ve already seen two to three rate increases, which would seem to be setting the trend going forward, and higher published pay rates are not likely to encourage new purchase business, nor borrowers sitting on historically low SVR’s to remortgage. It is ironic that one lender who has hiked the majority of their best rates by over 0.9% in just over four months, has this week claimed that 2011 saw the “most affordable” mortgage deals. Obviously not anymore.”

The fixed/capped/tracker split is heavily influenced by the advice given by John Charcol and it is to be expected that the swings between fixed and variable rates will be much greater than the figures from sources such as CML and BofE.  Their statistics are made up of a mixture of advised and non advised sales and the advice offered by different brokers and lenders will vary.

Definition of First Time Buyers
The percentage of the purchase market taken by FTBs varies depending on definition.  The Council of Mortgage Lenders treats any purchaser who is not simultaneously selling a property as being a FTB. This means that, for example, anyone who is returning to the property market after renting for a period or after a spell working as an expat will be treated as a FTB, as will someone acquiring a second property. As a result the CML estimates that it overstates the number of FTBs by about 25%, although their method of calculation is consistent and so its figures still provide a good indication of trends.

At one time many lenders offered some additional, and usually cheaper, mortgages for FTBs to choose from and lenders’ definition of a FTB varied. A few lenders still offer special FTB mortgages but most don’t and so there is now less reason for borrowers to want to be classified as FTBs in marginal cases in order to qualify for a particular mortgage deal. At John Charcol only genuine FTBs are classified as such but there are situations where it is possible to argue as to whether or not a purchaser is a FTB. The most obvious is where a couple are buying and one is a genuine FTB, but the other either currently or previously owned a property. In this situation John Charcol would not normally classify the purchasers as FTBs, with the possible exception being where the actual FTB is the sole or principal earner.

We have a back-up of all the previous Charcol Index reports:

• June 2009 (PDF)
• October 2009 (PDF)
• April 2010 (PDF)
• May 2010 (PDF)
• July 2010 (PDF)
• August 2010 (PDF)
• October 2010 (PDF)
• March 2011 (PDF)
• May 2011 (PDF)
• October 2011 (PDF)