Happy birthday bank rate, now it's all about the politics
Posted on 4 March 2010 by
Following the publication of last month’s Quarterly Inflation Report there was little doubt that bank rate would remain on hold this month. The good news for borrowers is that while bank rate remains dormant, mortgage rates continue to drift lower. Availability of home loans above 75% loan to value has continued to improve and this has prompted more competition and a subsequent beneficial impact on pricing. Despite this, borrowers should be wary of politicians, if they are not already, and their impact on the market.
The publication of the much-discussed poll in last weekend’s Sunday Times caused a sharp fall in both sterling and gilts on Monday, as the likelihood of a hung parliament began to creep further into the overall equation. One thing markets hate is uncertainty and a hung parliament would clearly bring that.
This kind of market reaction cannot be ignored when considering future mortgage options. The economic arguments continue to suggest a tracker mortgage is the right choice for most borrowers because the economy is in such a mess that very low interest rates are here for some time yet. Yet the election cannot be ignored. The markets have been expecting a Conservative majority and what once looked like a forgone conclusion is now not so certain. This may have a negative effect on fixed rate pricing.
The message for borrowers is simply that no generic advice will do. The political uncertainty may mean the right choice for some borrowers is to batten down the hatches and lock into a fixed rate for at least five years, but with the difference between these and the best tracker mortgages around 2.5%, there is a big premium for the security of a fixed rate. Seeking independent mortgage advice on your own specific situation has arguably never been more important.
One month doth not make a trend – approvals should bounce back
Finally, it is worth highlighting that some commentators have suggested the weak mortgage lending and approval figures for January are an indication that the steady improvement in the housing market is coming to an end. It is always very dangerous to take one month’s results as gospel. All the figures we see indicate January was an aberration, almost certainly caused by the snow which naturally had a significant impact on prospective buyers’ ability or willingness to look at properties. We expect to see a bounce back in February’s approval and lending figures.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.