Mortgage rates fall but outlook remains bleak
Mortgage rates have started to fall as the cost of borrowing on the money market eases - but experts warn the outlook for the UK’s property market remains bleak.
According to financial data provider Moneyfacts, the average two-year fixed-rate mortgage now stands at 6.96%, some 0.12% below the 7.08% peak seen just two weeks ago.
Halifax, Nationwide, Abbey and Cheltenham & Gloucester have all cut the price of fixed rate deals, with Barclay’s lending arm the Woolwich cutting the rates on its fixed-rate mortgage range by as much as 0.32%. Its 10-year fixed rate will fall to 5.97%, while its three and five year rates will drop by 0.20% 0.10% respectively.
David Hollingworth, a mortgage broker at London & Country believes the moves all signify a growing appetite for mortgage business. “At the start of the year mortgage lenders wanted to limit how much mortgage business they took and so priced themselves up accordingly,” he says. “Now however we are seeing more competition between lenders, more choice for borrowers and more encouraging products coming to market.”
The reason mortgage rates have fallen is cheaper funding for lenders. The majority of banks borrow from the money markets in order to fund new loans, but for most of 2008 rates have remained much higher than Bank of England base rate. This has made it more expensive for banks to lend.
However, rates have started to ease slightly in recent weeks, prompting some lenders to pass this on to cash-strapped borrowers.
Property market under strain
Despite the price reductions, the gloom surrounding the UK’s property market sees no sign of lifting.
Online property website Rightmove claims that average asking prices across England and Wales dropped by £7,281 over the past two-months to £235,219.
And although spring is traditionally a buoyant time for the UK’s housing market, as buyers agree deals before the summer holiday season, Rightmove claims that this year’s season saw average unsold property numbers rising from 74 to 77.
Figures from the Council of Mortgage Lenders (CML) confirms the bleak outlook, with gross mortgage lending declining to an estimated £23.8 billion in June, down 3% from May and 32% from June 2007. “Market activity during a traditionally a busy time of year for mortgages has been muted by funding shortages and, more recently, dampened consumer demand,” says Michael Coogan, director general of the CML.
But it’s not just sellers that are feeling the pinch. Smartnewhomes.com claims that marketing prices for new build homes suffered a second monthly fall of 2.6% in June.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.