Housing & mortgage round upThis week we take a look at the latest house prices survey which makes grim reading for most homeowners, although people looking to get on the property ladder may take a different view.

We also cover some interesting moves by the big lenders on their fixed rate mortgage products, in the wake of a new government scheme designed to encourage banks to lend at more competitive rates.

House prices fall

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The Nationwide Building Society House Price Index has shown that prices fell last month, the fourth month out of five that this has happened.

The UK’s largest building society said that house prices fell by an average of 0.7% in July, taking the average house value down to £164,389.

Reacting to the figures Robert Gardner, Chief Economist at the Nationwide, said: “The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy. Data released last week revealed that the UK recession intensified in the three months to July, with the economy contracting by 0.7% quarter on quarter. This disappointing outturn can be only partly explained by unusually wet weather and the impact of an extra bank holiday during the quarter. Indeed, the UK economy has contracted by 1.4% over the past nine months, and is now 4.5 percentage points smaller than it was in Q1 2008.”

Gardner continued: “Against this difficult economic backdrop, it could be argued that UK house prices have shown resilience. While prices are currently 13% below their 2007 peak, this is less than the declines seen in a number of other economies that have experienced similar or more robust economic recoveries”

July’s fall takes the annual reduction in house prices to 2.6% and around 10% off their pre Credit Crunch peak. Interestingly the UK is faring better than other countries, for example the Dutch and US house prices have fallen by approximately 15% since their peak, with Spain experiencing a slump of over 20%.

Bank Base Rate on hold

The Bank of England’s Monetary Policy Committee (MPC) voted last week to keep base rate at 0.5% for another month; the Quantitative Easing (QE) program was not extended either.

This is of course good news for homeowners, particularly those with a Tracker mortgage linked to Base Rate, whose payments have been low now for over three years.

However, most mortgage experts believe that there is now very little to link Bank Base Rate with the pricing of mortgage products, although the monthly announcement from the Bank will always create headlines!

Lower Fixed Rate mortgages

In a busy week the Bank of England also announced details of the new, £80 billion, Funding for Lending Scheme (FLS) last week. The FLS aims to make more money available, which banks can then lend on to businesses and consumers, at more competitive rates.

The effects of this scheme seem to be kicking in already with a number of lenders, including HSBC and Santander, offering four and five year fixed rate mortgages below 3%, albeit for applicants with a large deposit.

However, there is some doubt whether the FLS will help reduce interest rates for higher loan to value applicants, or indeed make mortgages more available for this group. Since the Credit Crunch, there has been a trend where many banks and building societies have been unwilling to lend to people with smaller deposits, or pushing up the interest rate where they will consider an application.

The FLS contains no provisions which will force banks to lend to those people, often first time buyers, with smaller deposits. In fact many experts are concerned that it is only those people with large deposits or significant equity in their home who will benefit from the lower fixed rate mortgages we are starting to see.

First time buyers “forced to pay twice as much for mortgages”

Despite the all time low fixed rate mortgages offered by a number of lenders, the Independent reports that some first time buyers, who traditionally have smaller deposits, might be forced to pay twice as much for their mortgage than other borrowers who have a larger down payment.

The Independent says that according to Moneyfacts, the average fixed rate for a 95% mortgage is 5.98%, around double the best long term fixed rate in the market for people with larger deposits of 40% or more.

It has to be hoped that the FLS pushes down interest rates for those buyers, with smaller deposits, who need the most help. At least two lenders, RBS and First Direct, have significantly reduced their fixed rate mortgages for borrowers with smaller deposits; as we mentioned above, time will tell whether the FLS means other lenders to follow suit.

Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options or you are affected by any of the stories in this week’s housing round up please call  Linda today on 0115 933 8433, alternatively enquire online or email linda.wood@investmentsense.co.uk

Your property may be repossessed if you do not keep up repayments on your mortgage.

For providing mortgage advice we will charge an application fee of £299 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.

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