Money Insider: House prices artificially high

The latest Nationwide building society house price survey reveals that average house prices in the UK rose by 1.2 per cent in January, nudging the annual rate up to 8.6 per cent, with some experts predicting that this figure could soon reach double figures.

This was followed by a similar set of positive data courtesy of the Halifax, which this week reported the seventh consecutive monthly increase in UK property prices. These latest statistics highlighted that the average price of a UK home is now almost a tenth higher than the low point last April.

Considering we're barely crawling out of what has been the deepest recession in almost a century, these house price numbers are somewhat surprising.

However with job security still a major concern for many, it is a lack of confidence that is contributing to a lack of supply in the property market which in turn is keeping prices artificially high.

On top of this, many standard variable mortgage rates are still far cheaper than new fixed rates on offer and some consumers are reluctant to up roots and move home as in some cases they'll have to switch to a new more expensive product with less flexibility.

With interest rates predicted to rise later this year, and the potential of government spending cuts on the horizon, it's difficult to see where the stimulus will come from to increase the number of transactions from their current low levels.

Personal loan rates hit nine-year high

A report issued this week revealed that the cost of unsecured borrowing had reached its highest for almost a decade.

With unemployment at a near 13 year high of almost 2.5m, it's no real surprise that the level of competition in the unsecured loan market has all but vanished.

Not only is the risk of defaults higher in the current economic climate, lenders can no longer rely on making huge profits from payment protection insurance which effectively subsidised lower loan rates.

With banks and building societies still adopting a far more cautious stance even when it comes to mortgage lending, where they have your property as collateral, it's no surprise that the appetite for unsecured lending has pretty much dried up.

In January 2007 before the credit crunch took hold, personal loan rates were being offered at 5.8 per cent which was just 0.55 per cent above base rate at the time. Clearly with such ultra thin margins these rates were not sustainable and any defaults would soon wipe out the profit margin on the loan itself – it would have been the PPI income that made lending viable at that time.

If you're looking to borrow £5,000 over a three year term, Alliance & Leicester is currently offering the cheapest personal loan at 8.9 per cent APR which involves monthly repayments at £157.97. The majority of loan rates are now in double figures and you'll need to a spotless credit record to be in with a chance of being accepted for the headline rates.

The days of cheap unsecured borrowing are unlikely to return any time soon, with more realistic margins and tighter credit scoring becoming the norm in the post credit crunch era.

Lenders focus on fixed rates

The fragile property market and subdued demand for new borrowing has failed to dampen the level of activity amongst mortgage lenders, with another stream of competitive products being launched this week.

First Direct has been a market leader in the tracker mortgage sector for a while now and this week trimmed pricing even further. The improved 2.39 per cent deal to 65 per cent loan to value with a fee of £999 is the current best buy and still looks an attractive option at 0.9 per cent cheaper than its own very competitive two year fixed rate product.

The fixed rate market is where lenders continue to focus their attention with costs still edging lower. Sub five per cent five year deals are becoming more common and this week Leeds Building Society launched an attractive 4.7 per cent product with a £999 fee for those with a 40 per cent or more stake. If you have a smaller deposit, there is a 4.85 per cent rate on offer with the same fee up to 80 per cent LTV.

If your preference is a shorter fixed rate deal, Santander is offering a 70 per cent LTV 3.44 per cent mortgage with a £995 fee while the latest Chelsea building society two year fix is competitive at 4.44 per cent for those seeking a home loan to 80 per cent LTV.

Andrew Hagger is a money analyst at Moneynet.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
News
i100
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
News
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project