Money Insider: Remortgage demand to keep rising this year
Friday 04 January 2013
Mortgage business has picked up slightly this year compared with the low level of transactions witnessed in 2011, and during 2013 I expect to see this number edge higher still.
With the UK economy still in turmoil, an underlying lack of consumer confidence will continue to stifle any meaningful increased activity in the housing market.
Although the number of transactions for house purchase will remain subdued next year, the remortgage sector should more than make up for this on the back of some of the lowest mortgage rates we've ever seen.
The market for 75 per cent loan-to-value or lower mortgages became saturated last year, and in the final quarter we saw more lenders turning their attention to the first-time buyer market, something that I'm certain will spill through into the first half of 2013.
The interest rates available to first-time buyers with a 10 per cent deposit have fallen sharply, but with the benefits of the Funding for Lending (FLS) scheme only just starting to kick in, there will be even better deals on the table next year for those lucky enough to be able to amass the required stake.
We saw the dangers of remaining on your lender's standard variable rate (SVR) last year when the likes of Santander, Co-operative Bank, Yorkshire Bank and Halifax unexpectedly upped theirs, something I'm sure we'll see more of as the banks look to claw back some of the burgeoning payment-protection insurance losses in the coming 12 months.
With five-year, fixed-mortgage rates now dipping below the 3 per cent mark if you've got at least 25 per cent equity, fixing your payments for a longer term makes perfect financial sense and will prove an increasingly popular choice in 2013.
The biggest problem for mortgage borrowers and the wider economy will come when interest rates start to rise as the money they've saved on lower repayments has been swallowed up by increases in fuel, energy and food costs.
Most economists agree that interest rates will remain low until mid-2014 or maybe 2015, so fingers crossed they're right and that time-bomb will keep on ticking for at least another year.
It's been yet another tough year for savers, but particularly so during the final quarter as interest rates have nosedived.
Ever since the Government made cheap finance available to banks and building societies via the FLS, the bottom has fallen out of the savings market. The situation is unlikely to improve during 2013, and with the current FLS not due to expire until 31 January 2014, the question is, how much lower will rates go?
At the beginning of 2012 you could get 3.6 per cent on a one-year, fixed-rate savings bond and 4.8 per cent if you were prepared to lock your cash away for five years. Today the best rates have fallen to just 2.5 per cent and 3.5 per cent respectively.
There is currently no appetite from the banks to appear in the best-buy tables. Indeed, some providers have decided to pull savings accounts altogether rather than keep tweaking rates downwards on an almost weekly basis, and I expect this trend to continue for at least the first three months of 2013.
One piece of positive news for savers is that the annual individual savings account (ISA) allowance will increase to £11,520, of which £5,760 can be held in cash (up from £5,640 this tax year).
There were calls from within the industry and some sections of the media for the Chancellor to permit savers to use the full ISA allowance for cash savings, but the plea was ignored in the Autumn Statement.
If rates continue to drift lower, it's highly likely that a similar call will be made ahead of the budget on 20 March; maybe Mr Osborne will come under increasing pressure to appease the UK savings population if they are still suffering as a side-effect of the FLS.
With interest rates delivering such paltry returns, more savvy people will continue to pay down expensive credit card and overdraft borrowings or make overpayments on their mortgage.
The combination of low interest rates and stubborn inflationary pressure isn't exactly a backdrop which will encourage people to save. However, it's still important that people who are able to should retain the habit of putting some money aside on a regular basis.
Come December 2013, I think there's a good chance that interest rates will be even lower than they are today. But I really hope for the sake of those who rely on their savings income I'm proved wrong.
Andrew Hagger is an independent personal finance analyst at moneycomms.co.uk
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