Category: All News

Expectations that house prices are set to rise have increased for the first time since May 2007 because of the low number of properties on the market and increased interest from potential buyers, according to the latest housing market survey.

The Royal Institution of Chartered Surveyors (RICS) regular monthly survey of its members shows activity in the housing market picked up last month and that surveyors appeared more optimistic about the prospects for the housing market generally.

The number of RICS members reporting an increase in new buyer enquiries increased during June, with 67 per cent reporting a rise rather than a fall, the eighth consecutive monthly gain.

The survey also contains more definitive signs that the rebound in enquiries is now feeding thorough into increased property sales. According to RICS, the number of properties sold rose again in June, albeit from very depressed levels by comparison to two years ago.

The average number of properties sold over the past three months rose to 12.7, up from 11.7.
Meanwhile, newly agreed sales, measured on a net balance basis, increased sharply, reaching their highest level since August 1999.

Jeremy Leaf, a spokesperson for RICS, said: “Although the market is showing signs of improvement, it is unlikely that there will be a sustained upturn while mortgage lenders remain risk adverse.

“A lack of stock on the market is providing a platform for modest price increases. While supply remains tight, the market may continue to show tentative signs of firming but instructions are starting to increase in some regions and this could dampen any meaningful recovery as long as economic conditions remain quite so uncertain.”

There are plenty of interest rate options available to the homebuyer when taking out or switching mortgages and this is often the area that causes the most confusion, all of which have their advantages and disadvantages depending on your circumstances. It can be confusing understanding all the features of the different products and knowing which one to choose.

Once you’ve decided on whether you are going to make payments on the capital or not, what you choose will depend largely on your current circumstances, such as whether you are a first time buyer, close to the end of your term, or what you can afford. Here are some of the options available.

Fixed rate mortgages
Fixed rates are one of the most popular interest rate options for consumers, particularly in an environment of rising interest rates. With a fixed rate, you guarantee that your rate and therefore your monthly repayments remain constant every month for a set period of time, whatever the lender does with the standard variable rate, or what base rates do. The length of time the fixed rate can run for varies depending on the mortgage you choose.

The most common fixed rate periods range between 1 and 5 years, although there are now 25-year fixed rate mortgages on the market. After the fixed rate period expires, the rate reverts to the lender’s standard variable rate, which will fluctuate along with base rates. If interest rates are rising, you remain protected against them, but should they fall, you’ll miss out on any potential reduction in your repayments.

Be careful, as many lenders will charge you a penalty if you move your mortgage before the fixed term ends. Be sure to shop around for the best deal for you and make sure you read the small print.

Discounted rate mortgages
With a discounted mortgage rate, you pay a set amount below the lender’s standard variable rate for a fixed period of time. For example, if the lender’s standard variable rate is 7 per cent and you choose a 2 per cent discount, the interest rate you will pay will be 5 per cent for the agreed term.

The terms can range between 6 months and 5 years. Generally speaking, if the term is short, the discount is likely to be greater, while for longer terms the discount is likely to be smaller. These mortgages are particularly helpful if you want to reduce your monthly payments at the outset and are comfortable that you will be able to afford the payments after the discounted period.In some cases the discount can be ‘stepped’, which means the rate reduces in two or three stages.

Capped rate mortgages
A capped rate mortgage is like combining a fixed rate with a variable rate. For example, for a defined period of time, your interest rate is guaranteed not to rise above an agreed fixed rate, but you should retain the benefits of smaller repayments should the interest rate go down. The terms can range from between a few months to the duration of the mortgage in some cases. Capped rates tend be more popular in a rising interest rate environment.

However, capped rate mortgages tend to be more expensive than fixed rate mortgages. As with discounted and fixed rate mortgages, you may incur a charge if you move your mortgage before the end of the agreed period of the offer.

Variable rate mortgages
This is essentially the lender’s standard variable rate. It will be higher than any introductory interest rate and your repayments will generally go up or down with base rate changes. Most borrowers will find themselves better off with an alternative special interest rate option, particularly if you switch when introductory offers come to an end. Be aware of any charges that might be incurred for switching mortgages before taking any action.

Tracker rate mortgages
Tracker rates are relatively new mortgage options whereby the interest rate you pay is guaranteed to stay at a certain level above the base rate. The rate will then remain within that set level above the base rate, whether it goes up or down, usually for the term of the mortgage. For example, you might find a deal whereby you pay 1 per cent above the base rate, whatever it may be or change to. Although you pay more of the base rate rises, you will benefit from any reductions in the base rate over the term.

There has been a mixed reaction to the latest statistics monitoring take-up of the government’s mortgage rescue scheme. Some reports have focused on the low number of households that have taken up an offer under the scheme. So far, only six households have done so, although more than 5,300 have embarked on the first stage of approaching a local authority to inquire about mortgage rescue.

Shelter criticised the low number of households taking up an offer under the scheme when the government published its latest statistics at the end of June. The homelessness charity called for a review of how successfully mortgage rescue was working. It said the scheme “has the potential to help many vulnerable home-owners to stay in their home, so it is very disappointing so few people have been accepted on to the scheme.”

Shelter continued: “Getting accepted into the mortgage rescue scheme is obviously taking considerably longer than we would want. The government needs to review the current eligibility process and tackle any issues that are preventing people from successfully taking up the scheme.”

Small scale
It should not be forgotten, however, that the scheme was only ever intended to operate on a fairly small scale, providing help for 6,000 households over two years. The circumstances of each individual case have to be carefully assessed and there are a number of stages of the process to work through, so it was always likely that progress from inquiring about the scheme to acceptance into it would take some time.

Mortgage rescue is, of course, also only one of the possible solutions available to households experiencing payment difficulty.

It is important that borrowers explore all the options, including the range of tools that lenders already have at their disposal like switching from a capital repayment to an interest-only mortgage, re-structuring their payments or extending the length of the term. And other government schemes, including help through income support for mortgage interest and the home-owner mortgage support scheme, might be more suitable for households in different circumstances.

Meanwhile, with cases of possession now rising more slowly than the number of borrowers falling into arrears, there is evidence that lenders are showing forbearance where they can and helping borrowers to work towards solving their problems, even if they do not end up in a government scheme.

Working with borrowers
Although only a handful of home-owners have accepted an offer of mortgage rescue, the much larger number of inquiries about the scheme may indicate that an increasing number of home-owners in difficulty are taking action to address their problems at an earlier stage, including discussing them with their lender.

Sometimes, borrowers have not even been in touch with their lender, despite experiencing difficulty.

Ultimately, lenders can only help those borrowers who engage with them. So, the message to borrowers in difficulty remains unchanged, and it is a simple one, talk to your lender at the earliest opportunity, and preferably before missing a mortgage payment.