2007 has certainly kicked off with a bang. A Base Rate rise in January, record gross mortgage lending in February all followed by a surprising Budget in March. That’s not even touching on the situation with house prices, which seem to be generally increasing, depending on which indices you follow.
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House prices
Starting with the house price picture across the UK, it is often a tricky exercise determining the actual level of prices and any rise or fall, simply because of the number of indices reporting each month. Each has its own methodology, which means, of course, that every one of them could potentially produce a different outlook. That said, looking at the three following indices we can gain an understanding of the general direction.
The Halifax House Price Index revealed that UK house prices increased by 1.8 per cent in February, leaving annual house price inflation unchanged at 9.9 per cent. Nationwide Building Society figures for February showed the average price of a UK house now stands at £174,706, a monthly increase of 0.7 per cent pushing annual house price inflation into double digits at 10.2 per cent.
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Turning to the government, the Department for Communities and Local Government’s (DCLG) latest figures for January 2007 show the average mix-adjusted average house price standing at £205,286, up from £201,090 in December 2006. This also pushed annual house price inflation up to 10.9 per.
Of course, it is often something of a red herring to talk about house prices in the UK as a whole when the real story often lies at the regional level, and generally it seems that across the regions the picture is positive. The DCLG figures saw all four home countries experience increases in house price inflation. Breaking this down even further to the English counties, we see London leading the way with the highest inflation rate at 13.2 per cent, followed by the North West with 11.1 per cent. The only two English regions where inflation fell were the North East and the West Midlands.
Many commentators cite the London market as the leader in the regional pack, meaning that where London leads the other regions eventually follow. The DCLG figures seem to suggest that London house prices are pushing on again after a period of relative small increases. We await to see if the rest of the market will follow suit.
Coming to terms
Across the piece, it seems that the market is still coming to terms with that surprise increase in the Bank Base Rate announced in January. Many commentators had expected a rise in Q1 but perhaps not as early as the very first month of the New Year. This increase made it three rate rises in six months, and figures from the Council of Mortgage Lenders (CML) have recently shown that many borrowers are now locking into fixed rate mortgages to provide budgetary certainty.
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Indeed it is first-time buyers who are most inclined to fix their mortgage payments, with 85 per cent choosing a fixed rate deal in January, according to the CML. Overall 70 per cent of home movers chose a fixed rate mortgage and 72 per cent of all new loans were on a fixed rate basis. It is perhaps unsurprising therefore that many lenders are putting a fresh focus on their fixed rate products with a number, most recently Nationwide, opting for longer 25-year terms.
Historically, there has been no great appetite amongst UK borrowers to lock-in for terms as long as 25 years. That said, there will be some borrowers who want to know what their payments will be for the life of the mortgage and, with many commentators expecting a further rate rise sometime in the near future, now may be the time they lock-in for the duration.
Robust performance
The mortgage market as a whole has continued to perform robustly throughout the first quarter. CML figures show gross mortgage lending hitting its highest ever levels for a February at £24.6 billion, up 9 per cent on the £22.5 billion in February last year, although slightly down on January 2007 figures of £26.6 billion. The CML continues to predict that gross mortgage lending will hit £360 billion by the end of this year.
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The various sub-sectors of the mortgage market have also experienced continued growth. Figures from the CML for last year show that 330,000
buy-to-let mortgages were taken out in 2006 – a figure which represents 11 per cent of all new lending. The total number of buy-to-let mortgages at the end of 2006 also hit the 850,000 mark with a value of £94.8 billion. The positive news continues with buy-to-let arrears continuing to fall from 0.64 per cent at the end of the first half of 2006 to 0.59 per cent at the end of the second half.
The growth in the non-conforming market can also be evidenced by the number of new lenders looking to enter the sector and the competitive products that are now available. But, perhaps the biggest news in the housing and mortgage market in Q1 occurred in the non-conforming market ‘across the pond’ in the United States where a number of non-conforming lenders have already been placed in liquidation causing a ripple effect into the global stock markets. Of course, the non-conforming sector in the US is very different to our domestic market but it is one area on which UK lenders are keeping a watchful eye.
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Overall, there is much to be cheerful about in the UK market, notably the continued strength of the mortgage intermediary distribution channel. In a highly competitive market, many borrowers need the services of a professional adviser and the range of products and services available to both mortgage intermediaries and their clients is a real positive. We await the rest of the year with much anticipation.
