Brian Murphy Blog- Should world stock and debt markets impact the UK mortgage market?

Monday 15th August 2011

To date the recent turbulence engulfing the world’s stock and debt markets has not had any direct impact on the UK mortgage market.

Product numbers have remained steady and pricing continues to ease lower with fixed rates continuing their slow but inexorable downward trajectory. Average five year fixed rates have just fallen below the psychologically significant 5% (4.99%) level for the first time. This is a far cry from just two years ago when the average five year deal was 6.10%, and a year earlier when the rate was 6.85%.

With comments coming from the US Federal Reserve suggesting that interest rates across the pond are likely to stay on hold at least for the next two years due to continuing economic weakness the UK could be looking at a similar scenario.

The markets believe that the sovereign debt issue has not been resolved with the costs of insuring debt continuing to be volatile in spite of recent ECB Central Bank intervention in the bond markets. If the worst case scenario does play out with some Euro zone nations defaulting, the banks that lent them money will be forced to write down many of those loans and the impact on profitability, and, therefore their ability to continue to make funds available for mortgages, credit cards and commercial business lending could be severely impacted.

RBS in declaring their half year results recently wrote off more than £700m of Greek debt, so this provides a real example of what could be a much wider issue with concerns now being expressed about nations including Italy and even France’s ability to meet its debt servicing obligations.

At present mortgage lenders appear to have good appetite to lend and to offer products to UK borrowers relative to 2009 / 10. In saying that, several leading bank lenders have reportedly missed their lending targets or lent less in the first half year in 2011 versus the same period in 2010. By contrast, several lenders within the mutual sector have significantly increased their mortgage appetite this year versus last.

If the recent market turbulence gathers momentum things could change very quickly!

Brian Murphy is Head of Lending at Mortgage Advice Bureau

National Mortgage Index – June 2011