Funding for Lending Ending

If you listen really carefully you might be able to hear it...its pretty quiet so just be alert...no? Well, it's the sound of the tap being turned off for Funding for Lending for mortgages. After 18 months the Bank of England have decided that to try and slow down the housing market they are pulling the plug on the industry subsidy. I am both pleased and disappointed by this. Pleased because the market is overheating, and Help to Buy I and II are stoking it further. The good residents of Fulham and Notting Hill may have felt that a 10-15% increase in house prices is business as usual, but for the rest of the country and it is a hike that is making home ownership more of a dream for thousands of first time buyers. I am also pleased as, honestly, the financial services have had enough of the tax payers' money over the last six years. I am disappointed as rates are going to start to rise now – not immediately, but over the next three to six months. We have had some staggeringly good fixed rates over the last year or so; sub 3% on a five year fixed, sub 2% on a two year fixed – its almost free money. And the market has responded accordingly, with a mass of applications, both purchase and remortgage. “Rates are still going to be historically excellent over the next couple of years” Rates are still going to be historically excellent over the next couple of years, and I would be surprised if the base rate increases before the middle of 2015. No sooner had Mark Carney announced that he was pegging the base rate to an unemployment rate of 7% he was backtracking, saying that once employment has hit this level the base rate will be reviewed as opposed to increased. I think he is still concerned about a housing bubble and a debt based recovery, but also concerned about squeezing the life out of the growth by rates increasing too quickly. So what does this mean for home buyers and home owners? Well if you are remortgaging then I recommend that you do this as quickly as possible, as rates are not getting any lower, and if you are on a standard rate of 2.5% or higher then really you should be moving onto a five year fixed to secure your ongoing payments. If you are buying, then, well it takes as long as it takes, (ask my friends at Brik about that) but as long as you are progressing in quarters one and two this year then you should still be able to access a great rate. But, let me reassure you, rates are not going to jump up and I think mortgages will still be readily available with reasonable criteria over the next year or so. Come 2015 though, that is when we might start to see the perfect storm of increasing rates, stricter criteria (due to the Mortgage Market Review – a series of regulatory changes affecting the UK mortgage market coming into play) and prices begin to flatten out. So make hay whilst the sun shines (metaphorically at least, as I write a force 9 gale is battering my office), get yourself the best rate you can at the moment, and batten down your hatches against a choppy outlook in 2015. Words: Alistair Hargreaves Mortgage Consultant, John Charcol