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Archive for interest rates

Chancellor calls for lengthier fixed rate mortgages

Friday, June 27th, 2008

The Chancellor of the Exchequer, Alistair Darling, has indicated that intervention may be needed in order to raise the amount of fixed-rate home loans available lasting up to 25 years.

Mortgage lenders have been accused of lending fixed rate home loans on only a short-term basis in order to maximise their profits. This might be good for the lender but is not good if you are looking for a new mortgage and now the government is considering intervening on the consumer’s behalf.

What lenders are currently doing is negotiating a fixed-rate deal to last only a short period of time and then giving us the option to renegotiate at the end of the period. We as the consumer are then left with the cost of footing the bill for the arrangement fees each time we have to renegotiate.

Although the typical home loan rate is high and still rising, more and more homeowners are looking to change to longer-term fixed-rate mortgages. This gives homeowners more financial stability as it is easier to budget for the future. So far most lenders have only increased the number of short-term fixed-fixed rate loans.

The rest of Europe offers many more fixed rate loans so why do we in Britain not have that option available to us? If the government does intervene homeowners could feel the benefit of much more financial stability as well as not having to face the hassle of going back to the lender every two or three years to renegotiate a new fixed-rate.

Posted in Bank charges, Borrowing, Consumer Credit, Financial news, Financial products, Homeowner Loans, Homeowners, Housing news, interest rates, mortgages, Property, Remortgaging, Secured loans, UK Finance | No Comments »

How vulnerable is the property market?

Wednesday, June 25th, 2008

While bad news about the property market is easy to come by these days, there must be some good news out there. We round up what economists and experts are saying about the property market.

First of all David Miles, chief UK economist for Morgan Stanley warned that house prices are going to drop by 10% in the coming 12 months. Mr Miles believes that house price growth was largely fuelled by speculation that prices would always continue to rise as well as the belief that the number of people buying properties would increase by 10% in each coming year.

However Mr. Miles also believed that falling house prices would not be such a bad thing for the economy since it would help redress the affordability issue in the market which has spiralled out of control in recent years.

Meanwhile, Capital Economics chief economist Roger Bootle predicted that prices in 2008 would drop by only 3% followed by the same amount in 2009, an optimism that many wish were true.

The reality is that thousands of pounds have alreeady been knocked off the price of the average house in the last six months and prices are set to fall further.

Mr. Bootle says that the drop in house prices has little to do with the credit crunch and more to do with a drop in interested buyers, the number of which have been falling for the past six months. Additionally, with home loan rates still high, despite the three base rate drops since last December, many borrowers are actually unable to get the loan they need to take advantage of lower house prices.

According to Mr. Bootle the two fundamental reasons for the house price slump is the 5 consecutive interest rate rises between August 2006 and July 2007 and the fact that the property market is now too expensive for most potential buyers.

Whatever the reason, there is no doubt that house prices are falling, and in what has been described as an over-inflated market, this is probably no bad thing.

Posted in Borrowing, Consumer Credit, Financial news, Financial products, First time buyers, Homeowner Loans, Homeowners, House buying, Housing news, interest rates, mortgages, Property, Remortgaging, Secured loans, UK Finance | No Comments »

Interest rate dilemma for Bank of England

Monday, June 16th, 2008

There are mounting fears that the Bank of England is losing its grip on the economy. A combination of rising food costs, fuel hikes and other price rises are stoking inflation which should mean raising interest rates for the Bank.

However as a result of the global credit crunch, banks are starting to hoard money instead of lending which is putting downward pressure on house prices and pushing the monetary policy committee (MPC) towards actually cutting the base rate. Even in this atmosphere of falling house prices, would-be buyers are finding it hard to secure a home loan to make a purchase they can now afford.

The credit squeeze has created much uncertainty in the economy and the nine MPC members seem very reluctant to actually cut interest rates. The members are facing a dilemma in that domestic inflation is heading in one direction while at the same time the international money market is actually going in the opposite direction.

When the Consumer Prices Index went up by 2.1% – which is above the government target of 2% – it would, under any other circumstances, signal an increase in interest rates in order to bring about higher borrowing costs. The interest rate at 5% is still an expansionary rate which will only fuel higher inflation, putting inflation up again to a more neutral level will hopefully neither dampen nor stoke the economy.

However the credit crunch is pulling for interest rates to come down. Uncertainty in the banking sector has prompted banks to cut lending to other institutions and instead hoard cash. Customers are reporting difficulty in securing personal loans, especially for debt consolidation, as lenders are either unable to access the funds, or simply unwilling.

Bank of England governor Mervyn King has warned the MPC that the credit crunch could get even worse in the coming year unless interest rates are cut.

Posted in Borrowing, Consumer Credit, Consumer debt, Debt Consolidation, Debt management, Financial news, Financial products, Homeowners, House buying, Housing news, Inflation, interest rates, mortgages, Personal debt, Personal loans, Property, Secured loans, UK Finance | No Comments »

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