The year ahead

Michael White of Emailmortgages.com looks at what is in store for the mortgage and housing markets in 2010

2010 is finally here. A new year, indeed a new decade, should bring with it a sense of renewed optimism for all those intending to purchase a new property or those looking to remortgage from their current loan. However, and without wanting to start on a negative note, the recent end to the Stamp Duty holiday which dropped the threshold back down to properties over £125,000, instead of over £175,000, and the increase in VAT to 17.5% will mean extra costs are incurred for many consumers.

First-time obstacles

For first-time buyers in particular any extra cost means it is that much more difficult to get on the property ladder, and the fact remains that this is still not a housing or mortgage market empathetic to first-timers. The staggering house prices rises which took place during most of the ‘noughties’ often placed property out of the reach of the average first-timer and while prices have fallen significantly from their 2007 peak, which actually means mortgage payments in relation to earnings are currently much below the average of the last 25 years, it is still a stretch for many first-timers to afford the property they want.

Good vibrations

That said there is some positive news. This time last year we were in a market where lenders did not want to lend, and if they were willing to offer mortgage finance, it was only to those deemed the lowest risk. That meant that only those with the biggest deposits, or substantial amounts of equity, were on the lender’s radars.

Thankfully, the end of 2009 did bring some common sense back to lending. 90% loan to value (LTV) deals are slowly coming back, while there are many more 85% deals than just six months ago. For example, if you have 10% deposit and are looking for a five-year fixed deal then 6.89% is currently available. For a shorter fixed period of two years the rate marginally increases to 6.99%. Interestingly, should you be prepared to open a new bank account and pay a minimum of £1,000 into it each month then there is a two-year fixed mortgage available at 6.49%. While these are not the most competitive deals ever seen, their existence is positive news; however, the fact remains that there is no change in 2010 - the bigger deposit you can amass, the more competitive deals you’ll be able to access.

Remortgage run down

To say that the remortgage market has been in the doldrums recently would be something of an understatement. Many borrowers are currently sat on their lender’s low Standard Variable Rate (SVR) or lifetime rates linked to the historically low Bank Base Rate (BBR) of 0.5%. This has meant a large degree of inertia for borrowers who would typically have looked to move their mortgage every two to three years. At present with BBR so low, borrowers do not feel the inclination to, for example, fix their mortgage at a rate which would see them paying more – at least in the short term.

A matter of interest

In 2010 potential remortgagors must answer the following question: what do you think will happen to BBR? If you are of the opinion that the Bank of England is likely to increase the BBR sooner rather than later, then you should certainly look to see what mortgage product options are available right now for you. Again, if you have a healthy amount of equity in your property you are going to find some very competitive tracker and fixed-rate deals available.

If, however, you believe that we are in a low BBR environment for the foreseeable future, then it is likely you will continue to sit on your current rate. It should be remembered however that many lenders do not link their SVR rates to the BBR; this means they can change them whenever they wish – Marsden Building Society did just that at the start of the year increasing its SVR from 5.49% to 5.95%. Don’t be surprised to see more lenders doing this over the coming months.

Overdoing it

For those borrowers who still intend to sit on what they have, my advice is to overpay as much as possible on your current mortgage each month as this will put you in a far better position when the inevitable happens and BBR finally increases. This will be a vitally important point for many borrowers because the lending landscape has changed so much in the past couple of years.

For example, many borrowers will have secured their last mortgage on a self-certification basis, but when they come to remortgage they will find that this market has all but disappeared. Indeed our regulator, the Financial Services Authority, is currently consulting on outlawing self-cert mortgages completely. This will mean many former self-cert borrowers could face severe difficulty in getting their next mortgage – again, my advice for those in these circumstances is to look at your remortgage options now.

Don’t wait until BBR is increased because when this happens we should all expect an almighty rush to remortgage. Lenders will then cherry-pick the best borrowers and the rest will be fighting it out for what could be slim pickings – remember that lenders are still risk-averse and there will be limited funding to go round. Those forced to stay on their lender’s SVR because they cannot get a new remortgage deal could find themselves paying significantly more than they anticipated.

Predicting exactly when BBR will be increased is very difficult. Many economists believe it is unlikely that the Bank of England will move rates until at least the end of the year. However, others are predicting a much sooner Spring rise. For my money I would suggest rates will have increased by the year end, which means that those looking to remortgage should not wait until then – beat the rush now and, as previously stated, you could be sitting pretty on a very competitive two, three or five-year deal.

Best advice

In all of this remember to use the services of a professional mortgage broker, preferably one that does not charge a fee; they will be able to give you the full picture in terms of your suitability, needs and the most competitive mortgages available on the market.

Finally, as we motor into this new decade I am reminded of the George Michael song ‘Waiting For That Day’. The lyrics go as follows:

“Now everybody's talking about this new decade, Like you say the magic numbers, Then just say goodbye to the stupid mistakes you made, Oh my memory serves me far too well.”

Let’s hope the memories of all those banks who almost took us to the brink of financial Armageddon are just as sharp. Mortgage consumers deserve much better than they received in the last few years of the last decade; it is my sincere hope that 2010 brings an end to the ‘stupid mistakes’ and a turning of the tide in the mortgage market.

Michael White is Chief Executive of online mortgage advisers. www.EmailMortgages.com