UK Mortgage Round-Up - Week 16
By Garry P Pierrepont
House prices continued to show falls in most parts of the country in the most recent surveys. Four out of every five surveyors at the Royal Institution of Chartered Surveyors (RICS) said that were seeing a reduction in house prices, the worst monthly figure ever seen in 30 years of compiling such data. Significant house price falls seem to be more likely than ever as other reports this week suggest that inflation is twice as high for the average householder than the official figures suggest.
The increase in mortgage repayments over recent months means that they now account for around 25% of take-home pay for the average householder, and the result is that families are cutting back on high cost outgoings such as holidays and home improvements. Ten years ago mortgage payments accounted for only 14% of after-tax salary. The figures show how the credit crunch is having an ever-bigger impact on family life in the UK. As people's buying habits begin to change there was some apparent respite in inflation as the Consumer Price Index remained at 2.5% for March, and the Retail Price Index fell from 4.1% in February to 3.8% in March.
Fears that Banks may yet not be disclosing the amount of exposure to the credit crunch led to Gordon Brown calling for them to come clean. It appears that they are still not keen to lend to each other, which leads to a higher inter-bank lending rate which in turn leads to higher mortgage interest rates. The Royal Bank of Scotland - owner of NatWest - looks likely to go to its shareholders in a bid to raise cash - at least £5bn. There are predictions that it could lead to other banks following suit.
The Halifax, UK's biggest mortgage lender, bumped up the rate on its two-year fixed deals by 0.5%, which would add £1,000 to annual repayments on a £200,000 loan. It is the biggest single increase since the credit crisis began.
One piece of good news in the mortgage market came when the Bank of England said that it had provisionally agreed to take over mortgage loans on the balance sheets of lenders in order to increase liquidity in the market. It would grant bonds backed by the Government in exchange for assets secured against mortgages in the UK. While the Treasury has some concerns about the impact on the taxpayer, it could unblock the mortgage market, which has stalled with banks' unwillingness to lend money.
Author: Garry Pierrepont
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