Bank of England Base Rate - Don't believe the hype!

Last week the Bank of England voted to keep the base rate at the all time low of 0.25%; the rate it has been since the post referendum, recession avoiding drop of 2016. The voting was 7-2 in favour of maintaining the rate, this has been pretty much the pattern for the last year yet this time there was a lot of media noise about an imminent rate rise.

While I understand the need to have something to report I wholeheartedly disagree with the predictions of a rate rise in 2017. I have consistently maintained in previous blogs (go look!) that rates are not going to rise significantly given the economic climate.

Will Interest Rates Rise?

There are one or two indicators that suggest the monetary policy committee may lean towards a rise. The first is the level of employment, some good news statistics were released last week stating that employment has never been higher in the UK and those claiming unemployment benefits has never been lower. I remember a few years ago when Mark Carney suggested that rates might go up when unemployment fell below 7% and he quickly had to change tack when unemployment fell below that level. It just was not the right time to raise rates.

The other main indicator of a potential rate rise is inflation; again traditional economic theory suggests to kerb inflation you raise interest rates. I have to say this theory has carried less weight since the credit crunch of 2008, inflation has fluctuated up and down and interest rates have been broadly the same, suggesting to me that the decision makers are taking a more pragmatic view.

So why do I think rates are not going up? Again there are likely to be many factors that the decision makers take into account however as I am not one of those people I like to take a more simplistic outlook on these things.

Firstly as a nation we are pretty highly geared, what I mean by that is that we have enjoyed borrowing money in recent years, the low interest rates have fuelled a lot of borrowing and frankly a significant rise in rates would see a lot of us struggling. Put simply if you are paying more on your mortgage each month you are going to spend less elsewhere and I don’t think the economy can’t take that kind of hit.

Uncertainty fuels doubt in the economy and I think the post Brexit uncertainty has led to a fall in the housing market. I can only speak personally here but it just feels much quieter than it did 18 months ago. If the Bank of England put rates up, even by a little bit, that is going to add fuel to that uncertainty and the housing market may suffer more as a result.

Finally the main reasoning for my argument is wages. In previous blogs I have stated that only when wage inflation starts outstripping actual inflation will the Bank of England decide to raise rates. All you need to do is listen or watch the news to see that wages are most certainly not rising in line with inflation. The 1% pay cap on public sector employees for the last few years is going to take a bit of time to catch up with inflation, even if they get their 3+% this year. The headlines last week were that wages have actually fallen in real terms meaning we all have less money in our pockets. In these circumstances I think it highly unlikely that the Monetary Policy Committee will vote in favour of a rise.

If you’re concerned about interest rates and your mortgage, please don’t hesitate to contact me for an informal chat about your circumstances and to discuss your options.

Inflation, Interest Rates and House Prices

There has been some interesting data released this weekwhich all has an effect on the economy; but what does it mean for those of us with an eye on the housing market?

Inflation has fallen this month to 2.6%, this is the CPI (Consumer Prices Index) measure and it is down from 2.9% in May. Historically the fiscal measure to try and stem inflation would be to raise interest rates but as I’ve said before these are not normal times. Since the financial crash of 2008 interest rates have been super low and inflation has rollercoastered its way along. It seems like other factors are effecting inflation, the value of the pound for example can have an impact. If you need to import goods to produce your product and the pound is weaker than before then you are going to increase prices. I think this has been the main driver in pushing inflation since the Brexit vote of June 2016.

With this slight drop in inflation perhaps we are seeing a levelling off or a “settling down’ as Bank of England Governor, Mark Carney, said last month.

The fact inflation has fallen a little does ease pressure on the Bank of England to raise rates and perhaps just sit out the Brexit negotiations and see what they bring. The Brexit negotiating period may well be a challenging time for the British Economy.

As I have repeated many times in my blog, keep an eye on wage inflation. This is still low and until it outstrips inflation then I can’t see a significant interest rate rise.

So with interest rates set to remain low for now what does that mean for house prices?

Well, interest rates are not the only factor in house prices. As my old economics teacher once said, “all you need to know is supply and demand and you’ll pass your exam” (he wasn’t entirely right on that one!). However housing is all about supply and demand. In the UK we have a housing shortage, more people want a house than there are houses, to put it simply. Therefore this demand for housing will keep pressure on the prices and cause them to rise. In June, RICS reported growth had slowed to 4.7% year to date. Slowed, but prices still rising.

On top of this if you factor in the report earlier this month that said estate agents have the lowest stock of properties since 1978. As always prices do see regional variation. If we look here in Surrey I can see low availability and high demand for areas within commuting distance of London with good schools, and I just can’t see prices falling in those areas.

So if you are selling in theory you should get a good price for your property, if you are buying expect to pay at the top of your budget.

With interest rates low, now’s a good time to review your current mortgage arrangements and see whether you can get a better rate by remortgaging. If you’re looking to move house and require a mortgage, you will also need to explore what mortgage lender’s are prepared to lend you to enable your purchase. If you require any support finding the right mortgage product, or would just like to talk through your options, call me on 01252 759233 or email richard@thesurreymortgagebroker.co.uk

Moving to Surrey? Have you thought about Schools?

If you’re moving to Surrey and have children, one of your criteria for finding a house will be schools. Fortunately, Surrey is lucky enough to have some of the best state and independent schools in the country, but that does have an impact on the local property market.

In many areas housing near popular ‘good’ or ‘outstanding’ state schools comes at a premium. The Department of Education (DoE) published a study earlier this year that found that prices are on average 8% higher close to top performing primary schools, and 6.8% of the best secondary schools.

So when starting your property search, and organising your finances such as mortgages, you’ll need to factor this in. Don’t take the average property price in a Surrey town as a benchmark for budgeting your house move. If you hope to send children to a popular school you might have to find an additional £40,966 to finance your move*.

Of course this could be a lot more in expensive areas of the county, less in the more affordable areas of Surrey.

Catchment Areas And Buying Property

It’s not just about catchment areas either. If a school is oversubscribed it doesn’t matter that your property is within the defined catchment area as the school will take those closest first – and those that meet other criteria. Therefore to increase your chances of getting a place at your chosen school, you’ll need to buy as close as possible to the school building.

This can result in a ripple effect in the property market with those houses closest commanding more than properties towards the outer edges of the catchment area. You could find that you can get an extra bedroom for the same money if you’re prepared to buy further away.

Buying close to a popular school is no guarantee of a place either. I’ve come across many parents who’ve found themselves moving to a desirable street close to the school of their choice, only to find themselves on a waiting list for an available place. It’s easier to secure that place if you’re applying at the same time as everyone else; however you will have had to have moved into your new home by the admission deadline.

So where do you start when trying to buy a family home in Surrey and ensure your children get a great education?

Buying A Family Home In Surrey

Mortgages and finance – first off find out exactly how much you can borrow to finance your move. There is little point in pinning your hopes on a top performing school if you’re priced out of the market in that area. If you’ve been on the mortgage lenders’ websites and haven’t managed to get quite enough to buy, it may be worth speaking to a mortgage broker or financial advisor. They may be able to find a way to get that extra money you need – within reason.

Research the property market – having identified a school/s you would like your children to attend, find out how much property is selling for close by. Speak to the local estate agents who will be able to advise you on the best roads to buy on, and what radius around the school you should concentrate your search.

The closer the better, but bear in mind that if you don’t get that school you could then be travelling much further afield to your 2nd choice.

Surrey County Council also collate data on the furthest distances each Surrey school has offered places to in previous years, you can search for this information here.

Speak to schools – the admissions office at your preferred school should be able to give you an indication of your chances of getting a place. If your children are looking to join the school ‘in year’ the admissions office will be able to tell you if there’s a waiting list.

Unfortunately even if you’re told that you’re at the top of the waiting list that doesn’t necessarily guarantee you the first place that comes up. If another child applies for a place and meets other criterion that is more of a priority, you’ll get bumped.

Time your house move with the admissions dates – where possible try to buy and move into your new home before the deadline for applying to schools passes. You’ll need to do this by October 31st for secondary schools and January 15th for primary school entries.

If you move after the deadline there is a 1 month period where you can apply with evidence of your new address and not be treated as a late application. After this date, applications are treated as late (‘on time’ ones are allocated first). If you move 3 months after the admission deadline you’ll be put on the waiting list/s unless a place is already available.

Have a plan B – as you can see there are a number of factors that make buying a house and getting a place at a popular school quite challenging. For this reason it’s good to have a plan B. Fortunately many Surrey towns are blessed with several good schools – they may not all be ‘outstanding’ but they are all delivering a highly quality education and pastoral care. For this reason I would recommend that you don’t get too hung up on one particular school over others. Keep your options open so that you can widen your property search; find a home that doesn’t overstretch your finances; provides the space and lifestyle factors you want; as well as being within a school catchment area that offers a good chance of a place.

To find out how different schools in Surrey are performing, click on this link.

If you are struggling to find a mortgage that will allow you to move close to the school of your choice, give me a call and we can explore your circumstances in more detail. Call 01252 759 233 or email info@thesurreymortgagebroker.co.uk

* The average house price of £512,072 in Surrey would go up £40,965.76 near one of the best primary schools and £34,820.90 near one of the top secondary schools.

What does the Election 2017 Result mean for the Mortgage Market? If anything?

So unless you’ve been living under a rock for the last few days you will know that Theresa May sort of won the General Election and has formed a minority government. The Conservatives won the most seats but fell short of an overall majority, which they wanted to be able to put themselves in a strong negotiating position when it comes to the Brexit issue.

Now that the dust has started to settle from the initial shock of the result what can we expect in the coming months and years for mortgages and the housing market?

The Brexit Effect

Running a business that is largely dependent on the housing market I can say from my perspective that the decision to leave the EU has affected the housing market. This may not be the view of other brokers but I would say that housing stock has fallen and the number of transactions have fallen. It feels very much like the housing market was post credit crunch. It also feels like there are fewer buyers around as people perhaps decide to sit tight instead of making major life decisions, like moving house.

The difference between the credit crunch time and now, is that money is cheap. It is easier to get a really competitive rate and this makes moving house still a viable transaction, as the interest rates are so low.

As ever with the housing market there will be regional variations. House prices are still rising nationally but not as quickly as before the referendum, probably a good thing. It is the reasons behind this slowing that might be a concern. My opinion is that this is down to lack of demand. If you thought your house was worth £x in Jan 2016 you might get a few interested parties competing with each other and actually achieve £x plus a bit more. Now the likelihood of competing buyers is pretty low.

Strong and Stable?

In order to bring some clarity to the country’s future Theresa May wanted a strong mandate to be able to show our European friends that she was fully supported by the great British Public. Unfortunately for her it didn’t quite work out that way. Commentators are now saying this might lead to a softening of the “hard Brexit” stance taken by the Tory party. I think largely it has led to uncertainty, which is not ideal. Uncertainty is what has led to the slowing of the housing market since the referendum so therefore if this uncertainty continues then I can’t see anything changing. Some readers might however feel positive about the election result, if the softening of the Brexit does happen then those “Remainers” might be appeased and feel more positive about the future.

What About Interest Rates?

Inflation is up to 2.9% and over the prediction made by the Bank of England (they said 2.8% by the end of the year). Historically a rise in inflation would mean a rise in interest rates but in this post financial crisis world in which we live this has certainly not been the case.

What the election result will not lead to is a rise in interest rates. Interest rates are out of government control and this is a good thing. The Bank of England make the decision and I don’t think rates are going anywhere until 2019 – that my friends is a prediction, not a promise!

Why do I think this? Although unemployment is low and we have the highest level of employment for a long time the key factor is wages. Wage inflation has been lower than price inflation for most of the last ten years. You will need to see a prolonged period of wage inflation outpacing price inflation before you see a rise in interest rates.

With the right deposit/equity you can secure a five year fixed rate mortgage at below 2%, if the lenders are happy lending for that length of time at such a low rate then they don’t think rates are going up either.

What Should You Do If You Want To Move Or Remortgage?

I would advise you to speak to a mortgage broker, like myself, or a financial advisor and discuss your specific circumstances. If the Election result or Brexit negotiations is creating uncertainty in your life – such as your job security – it may be that you could remortgage now to give yourself a bit more peace of mind.

If you’re looking to buy and selling a property is not an issue, it’s a buyer’s market for the moment and those low interest rates may also work in your favour.

Contact me if you would like to discuss any of the above in more detail or have an informal chat about your specific requirements.

Mortgage Agreements in Principle - What steps should you take beforehand?

Whether you’re a first time buyer or an old hand at the mortgage game, if you need a mortgage you’ll also need a mortgage agreement in principle to proceed with your house purchase.

Just to clarify, a mortgage Agreement In Principle (AIP) is where the lender will carry out a credit score on you and give you an indication that they would be willing to lend subject to valuation. Some lenders refer to it as ‘decision in principle’.

As they are going to carry out a credit score this is likely to leave a ‘footprint’ on your credit file and technically this can affect your credit rating. If this is the case then you want to be prepared, as you want the best chance possible to pass the credit score.

Check Your Credit Report Before Applying For A Mortgage Agreement In Principle

First of all check out your credit report and see how you will look to any potential lender. I always point people towards Noddle.co.uk as it is a free for life rather than one of those free for 28 days then we’ll charge you as you will inevitably forget to cancel. That said lenders tend to use Call Credit (Noddle), Experian and Equifax. So if you don’t think you are getting the full picture from Noddle then you might want to try the other two.

Once you have got your credit report you might need to act upon the information. For example if there has been activity on your file you don’t recognise you’ll need to find out what it is and if it is negative, get it sorted.

If you don’t have a lot of credit this can also be negative. In these circumstances I often recommend you get a credit card wherever you can (try your bank in the first instance) and use the card sensibly. Maybe fill the car up once a month with it and then pay the bill in full. After a few months you should see an improvement in your score.

Of course if you want to get an agreement sorted now regardless of your credit score then make sure you have all the correct information available regarding:

Income – last three months payslips and p60, do you get bonuses or commission, if so then have the exact figures for the last year.

Expenditure – how much do you pay for loans, Hire Purchase, Childcare etc.?

Credit Cards – is there an outstanding balance, even if you pay off each month you’ll need to know how much is outstanding today.

Deposit – You’ll need to know how much you are putting down as a deposit so the lender carrying out the AIP can put you in the right loan bracket.

Some lenders leave a credit footprint on your file so the more times you applying the worse it can be for you. However, some lenders don’t leave a footprint on your file so if you can find them you are having a shot at nothing that won’t affect your score. Most brokers will be able to point you in the right direction.

I hope these tips help and if you need any further guidance then feel free to get in touch.