The Only Way is Up?

Posted on 9 June 2014

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The Only Way is Up?

So, in the blink of an eye, we’re half way through 2014! And what a year it’s been so far. We’ve been told that 90% of us were actually 2.5% better off last year, whilst various economists and an ex-Monetary Policy Committee (MPC) hawks have been eagerly predicting  bank rate rises as early as the autumn. The headline rate of unemployment, edged closer to the fabled 7% threshold, at which point the Bank of England said it would look at raising rates. Then there was the surprise news that wage increases had outstripped inflation, with the ONS estimating wage increases of 1.7%, though Consumer Price Index  has since increased this to 1.8%.  Across the pond, US politicians finally stopped playing ‘chicken’ with the worlds largest economy and came to agreement on the federal budget, thus ending fears of the US defaulting on its debt, and potentially causing global economic chaos, and although they have now begun scaling back their monthly QE, the recovery remains fragile.

So pausing for breath, it’s now time to consider the two most important items on the agenda for mortgage borrowers this year.

Firstly, we have “Forward Guidance 2” the sequel to the bank of England’s original “Forward Guidance”, and unlike most sequels, this one is actually better. Where the first focused solely on the headline rate of unemployment falling to 7% as the threshold for the MPC to look at whether to raise the bank rate, “Forward Guidance 2” takes in a broader range of indicators which will include wages, productivity, and the output gap (difference between potential and actual Gross Domestic Product GDP).  Messrs Carney and Osborne are united in their belief that the economic recovery is still fragile and unbalanced, leading the bank to ease the fears of borrowers, saying that rate rises will be gradual, which reading between the lines, means the MPC will look to carefully assess the impact of any increase before introducing the next one. One interesting comment came from the minutes of this months MPC meeting where the committee said that a return to pre-crisis levels of 5% plus are unlikely.

Secondly we’ve had the Mortgage Market Review (MMR), and this one’s nothing to do with vaccinations. MMR came into effect on the 26th April this year, and is the most important change to how mortgages are sold and assessed since the introduction of regulation 10 years ago.

With all the excitement of Help to Buy and the resurgence of 95% mortgage lending by the major lenders, MMR didn’t receive much significant coverage until it came into effect, but suddenly it became huge news! The biggest change is that lenders are now totally accountable for the affordability of your mortgage. “Well so what”, we hear you say, “How will that affect my mortgage application?” Well two of the major shock waves are a far greater focus on your bank account conduct and discretionary spending, along with stress testing the case against future interest rate rises.

Most analysts predicted that MMR would result in a slowdown of lending in Quarter 2, though to what extent isn’t known yet, though early indications are definitely pointing to a fall in loan approvals. However the one certain thing is that there are teething problems and the next few months will probably make it harder for people to get a mortgage. We’ve all heard stories in the news of hopeful  borrowers being asked about the cost of their haircuts and how often they eat steak – but the reality is that as lenders get used to the new rules, we think that the more invasive questions will probably be scaled back a bit. It’s important to realise  though that, going forward MMR means that more than ever it is crucial to get advice to ensure that you get the right mortgage for your individual situation, and not waste time trying to chase those seductive cheap rates So if you’re thinking of moving, buying an investment property or your current deal is nearing its end, then please talk to us, so  we can help you get the best deal for you!


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