Posted on 8 April 2010 by
Despite the next Quarterly Inflation Report being due a mere 2 days after the May Bank Rate decision, which has been delayed to Monday 10 May because of the general election, a rather more important influence next month will be the result of the General Election, and in particular whether there is a hung parliament. Should the election be close the result may not be obvious when the MPC starts its two day meeting on the day after the election. In view of the significant difference in the fiscal policies of the two main parties, and the impact these are likely to have on the markets, the future trend of bank rate is very entwined with the political future of the UK. Therefore any lack of clarity on the of the make up of the new parliament would make early discussions at the MPC meeting somewhat problematical.
Looking further ahead the MPC will clearly want to see more information quickly from the new government on its fiscal plans as monetary policy is clearly influenced by fiscal policy. For example, the Conservatives have said that if they form the new Government there will be a budget within 50 days. They have also said they want to see interest rates remain low for some time.
In the unlikely event of a hung parliament the situation becomes more difficult as this will significantly increase the risk of the UK losing its AAA credit rating. Despite the credit rating agencies demonstrating their incompetence in the run up to the credit crunch, what they say still has a surprisingly large amount of influence and so, whatever one’s views of the agencies, what they say can not be ignored.
What does this mean for mortgages?
Anyone considering a new mortgage before the election should not ignore the political risk, not only because of the impact the result could have on interest rates but, perhaps even more importantly, also because of the impact the result will have on the UK economy. Mortgage rates have continued to edge lower over the last month, with for example, Woolwich now offering a Lifetime tracker up to 70% LTV at Bank Rate + 1.99%, although this rate does require a minimum loan size of £200,000. Likewise there is now a bigger choice of sub 5% five year fixed rate mortgages, with both Nationwide and Woolwich introducing 5 year fixes at 4.99% up to 70% LTV this week, although Nationwide only offers this rate for purchases.
Five year fixed rates have fallen over the last few months but so have tracker margins. Therefore there is still a big premium to pay for the security of a longer term fixed rate, but at least the actual cost of buying that security has fallen to a level which will attract more borrowers. Obtaining independent mortgage advice on one’s own specific situation should continue to be a priority for borrowers, with an ever increasing number of factors to be considered, including now, for some joint buyers at prices between £125,001 to £250,000, whether it is possible to structure the purchase and associated mortgage in a way to qualify for first time buyer stamp duty land tax relief
One month doth not make a trend
Last month we commentated on the fact that some commentators were suggesting the weak mortgage lending and approval figures for January were an indication that the steady improvement in the housing market is coming to an end and how dangerous it was to read too much into a single month’s figures. Nationwide’s March seasonally adjusted house price index recorded a rise of 0.7%, following February’s 0.8% fall. However the real (i.e. non seasonally adjusted) figures showed a rise of 2.0% in March, compared with a fall of 1.3% in February. Likewise Halifax’s seasonally adjusted house price index published this morning records an increase of 1.1% for March compared to a fall of 1.6% in February. Unhelpfully Halifax never includes the real figures in its press release but it is reasonable to assume the seasonal adjustment is on a similar scale to Nationwide’s.
The mortgage lending figures for February increased by 6% to £9.2bn and although the widely reported figure for February mortgage approvals for purchases showed a 2.1% fall to 47,094, the real approvals figure for purchases showed an increase on the month of 36% to 40,622 and for remortgages a 46.8% increase to 27,854.
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