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Remortgages are bearing up

The stockmarkets and the mortgage world have both been turbulent this year. As share prices fall, and central bank base rates are cut, the standard variable lending rates also go down.

But while the stockmarkets are seeing volatility due to a loss of confidence, the mortgage market in the UK is buoyant amid a price war.

Surveys from the Nationwide and the Halifax both consider the market to be strong. Overall, lending is up, according to the Council of Mortgage Gross lending for February was £9.5m, up from £9.4m in January and £7.9m in February 2000.

Despite the major lenders waging a rate battle, brokers are fairly relaxed and believe the mortgage market is well insulated from events on the world stockmarkets. Very few can see much impact at all, other than perhaps at the very top of the market, where potential buyers might have lost money or not be getting the expected bonuses. First-time buyers are relatively unaffected.

Regarding any knock-on effect of a bear run on the stockmarkets, London & Country mortgage specialist David Hollingworth says the volatility will further confirm the move towards repayment mortgages. He says: “The endowment situation has opened people&#39s eyes and they do not want to take risks with their mortgage even though they might be financially sophisticated and fairly adventurous elsewhere.”

If the economy moves into a recession, the consensus is this would not lead to the mass repossessions seen under John Major&#39s Government. CML figures show that the number of properties repossessed in 2000 was the lowest since 1989. The general level of arrears has decreased significantly. The figures for mortgages over 12 months in arrears are down by a third compared with this time last year.

Riach Independent Financial Advisers proprietor Bob Riach says: “I do not think that the situation of the early 90s will be replicated. Lenders are being much more selective and now have credit-scoring at their disposal.”

The major trend is in remortgaging. The number of home purchases has fallen but the amount of lending has increased dramatically. In January, around one-third of all lending was for remortgaging. CML figures for February show refinancing is still running at record levels, accounting for £3.5bn out of total lending of £9.5bn.

Scottish Amicable national mortgage manager John Malone says this is a matter of good housekeeping growing out of increased consumer knowledge and confidence. The rate battle among the lenders is likely to fuel this trend further.

The low interest rates that economists say will be around for the foreseeable future will have a stabilising effect. Whether this will tempt more into buying property is open to conjecture. Malone asks: “With the percentage of home ownership at around 70 per cent, can it go any higher?”

First-time buyers that are encouraged into the market by the cheapness of loans will be entering a very different environment than that of the 90s. Riach says: “Given the low interest rates, it is important for advisers to make sure clients understand that interest rates could go up again and make sure there is plenty of affordability.”

There is an increasing trend for longer fixed-rate products but there could be further base rate cuts. If the UK joined the European single currency, rates could go even lower.

Hollingworth says borrowers should be looking at what fluctuations they could take. He says: “Fixed rates will still offer that security but that has to be tempered with the various tie-ins that those products come with.”

Flexible mortgages allow borrowers to make their own decisions about the best allocation of resources. But they may dry up if the British economy is dragged down by the US downturn.

Halifax spokesman Ian Beggs gives another interpretation for the popularity of flexible mortgages. He says: “The withdrawal of Miras has left little incentive to holding on to a mortgage for any longer than absolutely necessary.”

Historically, in times of volatility, people have tended to liquidate their assets and hold money on deposit.

Some borrowers may want to pay their mortgage off, says Beggs. But he qualifies this by saying that most advisers will be telling clients to sit tight rather than making rash decisions.

Malone suggests one area that will see considerable growth is equity-release mortgages for the elderly. Older people are seeing disappointing annuity rates and low interest rates will be affecting their savings on deposit.

He predicts many more providers will be preparing products to take advantage of this growing market. This could also have an impact on property prices as the elderly find it possible to stay on in their homes for an extra five years or so, he predicts.

Riach says equity-release, while meeting a demand, requires caution as the product must be right for the client.


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