Finance Articles

CML promises brighter future for mortgages

A key issue in the UK property market in recent months, both for residential buyers and those looking to acquire investment property, has been the cost of mortgages, with the credit crunch pushing up interbank lending rates, which in turn have restricted the capacity of banks to lend and led to higher rates and deposits for borrowers.

In more normal circumstances, interest rate cuts would lead to widespread drops in mortgage interest rates. But these are not normal circumstances, which is why the Bank of England has made ?50 billion of bonds available for the banks to use in order to securitise mortgage debts, something the money markets have been less than willing to do of late. This bid to increase liquidity has been seen as crucial in oiling the wheels of the property market.

The move has also been flagged up as proof that the Bank of England has more than one card up its sleeve when it comes to the property market, with monetary policy committee (MPC) member David Besley stating in a speech this this week that the scheme will free up interest rate policy to be used for its core aim of hitting the inflation target.

As it happens, the minutes of the last MPC meeting, published today, showed that Mr Besley was one of two members who voted to hold the base rate rather than cutting it by 0.25 per cent. With six voting for such a reduction and David Blanchflower advocating a 0.5 per cent trimming, it was the first three-way split in the MPC's vote since May 2006. It also defied analysts expectations, coming hours after CEP News stated that experts had been expecting a unanimous decision to be revealed.

Despite all this, Capital Economics analyst Jonathan Loynes was convinced the MPC was now locked into a pattern, telling AFP News that the prevailing policy was one of cuts in alternative months. Therefore, he said, the next change would be a shaving of the base rate to 4.75 per cent in June.

Yet such a move, except where tracker mortgages are concerned, appears rather futile when the lenders are setting their base rates according to Libor levels rather than the base rate. In the summit called by chancellor Alistair Darling with industry representatives from the Council of Mortgage Lenders, the appeal to pass on the cut was made again. However, there was no immediate commitment to act this way emanating from any lender, bar the 0.1 per cent shavings of tracker and variable rates already announced by Abbey, which said it was making the move in the expectation that the bond scheme will lower the interbank lending rate.

In the joint statement by the government and the CML after the meeting, it was acknowledged that lenders expected the scheme to have an impact. It said: "The group confirmed that this is an important step to tackle funding market difficulties, helping to bring further stability and confidence to the financial markets, and in due course should help banks and building societies to ensure that competitive mortgage products are available to potential borrowers."

While the question of what constitutes "in due course" is not presently clear, the pledge does at least suggest better times are ahead, ones which should see the market recover substantially. Such better times, however, will depend more on Libor than the machinations of the MPC.

In today's world Property investment is an excellent investment option especially investment in UK

Jim Barnaby is a real estate investment broker and successful property investment adviser delivering research and selected UK and overseas property investment solutions with experience in spanish properties, french property investment, German property, Cyprus holiday homes, Property in Cape Verde, German property investment, cape verde property buy to let property

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