The amount of money lent in June reached £17.5 billion for residential mortgages. This figure is 17% more than for the same period last year and is the highest monthly figure since October last year. These figures were lent before the announcement of tighter lending rules at the end of June, and the Bank of England who announced the new rules will be very keen to ensure that they are implemented.
The Bank of England has held rates again and for the present appears to be pursuing lenders with seemingly aggressive tactics to limit the amount of money they lend. They want lenders to ensure that if interest rates were to rise by 3% affordability would still be in place. In addition they want to limit the income multiples that people can borrow to no more than 4.5 times from October for Help to Buy Borrowers, with only 15% of people outside of the of the scheme able to top the 4.5 level.
The changes are perhaps more window dressing than anything else at the moment, as outside of London we do not have more than 15% of people borrowing 4.5 times income, and with relatively static house prices we are generally not pushing affordability as is happening in the South East. Also, I have noticed that since the announcement on June 26th the share prices of Persimmon and Barratts the house builders have risen which would suggest to me that indeed the Bank of England’s bark looks worst than its bite. However, I do think that if the figures mentioned earlier do not abate, and a housing bubble starts to appear outside of the South East I would expect them to take further action by restricting the amount you can borrow to perhaps 85% of the purchase price. These were the sort of percentage figures we were used to at the beginning of the financial crisis, but I would not be totally surprised if they reappear again. It will be a close call for the Bank what they do next, increase interest rates and put the existing homeowners under pressure, or restrict mortgage supply and cool the market in that way. In truth if the markets remain reasonably buoyant I can see them doing a bit of both, as they must start to reward savers with interest rates rises as the lower rates over the last few years have been very unpopular for many voters.
I feel that the most important message to take away from the political and economic manoeuvring from the government and the Bank of England, is that house prices are perhaps no longer going to be at times delivering double digit growth on an annual basis. If the authorities deliver on their promises I’d expect to see houses perhaps keeping up with inflation and maybe a bit more, with levers being pulled that are not interest rate related to restrict price increases once they are showing signs of getting out of hand. Overall I believe it is good news for first time buyers who want to get on to the housing ladder and perhaps not such good news for speculators who are looking for a quick profit.
Kieron Bassett Financial Services has two Independent Financial Advisers who specialise in mortgages, general insurance and investment advice. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett DipPFS
21st July 2014
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