House prices have been drifting downwards since the summer of 2010, although there has recently been some hint that they may soon stabilise. After the recession struck, and housing market activity contracted sharply, an uneasy equilibrium has been established in which the subdued level of new buyer enquiries is broadly matched by a reluctance to put properties on the market. It seems unlikely that most face a pressing need to sell, with the number of home possessions having declined from the 2009 peak. But concerns about the impact of public spending cuts on income and employment prospects will make households nervous of committing to a mortgage.

Seasonal fluctuations aside, housing market activity was given a temporary boost around the turn of the year by the imminent ending of temporary stamp duty relief for first-time buyers. Mortgage approvals for house purchase fell back in February, but remained 7% higher than a year earlier, suggesting that a gradual underlying strengthening remains intact. But viewed against any historical yardstick, activity remains exceptionally subdued, with approvals only recovering to a level that approaches that seen at the depth of the 1990-91 recession and still running at no more than half of that experienced prior to the financial crisis.

Continuing buyer caution is likely to prevent any sustained upward pressure on property prices at a national level but regional performance is becoming increasingly divergent with London and parts of the South experiencing rising prices, while they decline elsewhere.

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The big issue is ‘interest only’ mortgages.  There’s no question that the best method of repaying a mortgage is by ‘capital and interest’ and by making sure you own the property sometime in the future.  Many took ‘interest only’ because the payment was lower and considerable equity was building in the property with high annual increases in property values, however those days have changed.  Property prices are currently fairly stagnant and we are certainly not expecting to see dramatic increases in prices for several years ahead, if ever again.

Lenders are of course not able to change repayment terms on existing mortgage contracts.  New applications have new rules in respect of ‘interest only’ agreements. This applies to all major lenders with most other lenders following suit.

Each lender, of course, has their own rules which all vary considerably but in principal lenders insist that in most cases there has to be an acceptable repayment vehicle in place such as an endowment, pension, investments etc. To complicate the matter further, each lender has a different list of what is an acceptable repayment vehicle.

There are of course exceptions to this with a few lenders stating they will offer interest only mortgages subject to certain conditions, such as a minimum level of salary or a minimum level of equity in the property.

The maximum amount you can borrow on an interest only repayment agreement is 75% of the value of the property. However, the majority of lenders are likely to only allow a loan of 50% of the value on interest only repayments.  Of course, buy to let mortgages which are normally interest only are not affected by these changes.

The other key change in the last 3 months has been the upward climb in interest rates.  We’ve noted a trend in the lenders increasing their fixed and tracker rates and probably overall they are up by 0.50% compared with a few months ago.  Nevertheless, rates still remain highly competitive and we have noticed that fixed rates have become much closer to tracker rates, and as it is highly unlikely rates will move downwards again,  it makes the argument to consider fixed rates that much stronger.

What was really surprising a few weeks ago was the move by some lenders was to increase their standard variable rate (SVR).  Halifax is to increase their rate to 3.99%, Bank of Ireland and Bristol and West to 4.49% and Clydesdale and Yorkshire bank to 4.95%.  Perhaps this will set a trend for other lenders to follow suit.  We are of course writing to all our clients about the increase and looking to review their current mortgage to see if we can find them an alternative with better rates.

Finally, the Government have introduced the NewBuy scheme which is intended to help first time buyers to buy new build properties, thus stimulating the housing market. The scheme is also available to second time buyers buying new property up to a maximum price of £500,000.

For this scheme, a 5% deposit is required and a few major lenders have joined although it is anticipated more will follow.  This initiative is very welcome and as well as benefiting first time buyers and the property market it will create additional employment for the house building industry.

Firstxtra will be pleased to provide further information on this to anyone interested.

If you are not in a special rate period and would like us to review your current mortgage with a view to finding a cheaper one, why not contact us and we will delighted to help.