Double rate rise starting to bite, but UK market still robust

Following the frantic rate of house buying activity in Greater London at the end of 2006 which saw prices rising by nearly 7% for the quarter, bringing the annual figure in Greater London to over 12%, UK regulated expatriate mortgage broker Offshoreonline.org has detected a slowing down in both the rate of price rises and the volume of homes being bought. High city bonuses, which were widely reported in the press, undoubtedly had both a real and perceived impact on prices, as ordinary buyers rushed to agree deals before city bonuses were paid out.

Bank of England data released this month shows the number of mortgage approvals actually falling in December from November’s record high, a pattern repeated in data release by the Council of Mortgage Lenders. Tim Harvey, managing director of Offshoreonline.ORG comments, “The data suggests many buyers were hoodwinked into paying over the odds, as they thought that if they did not agree their purchases before city bonuses were paid, they would be outbid. In actual fact, what we can now see is that demand has already started to drop.”

Buy to let lending continued to grow strongly and now represents 11% of all new borrowing in 2006, according to the Council of Mortgage Lenders.

With new data now showing the monthly rate of house price inflation at 0.7% for January, the market should begin to cool, particularly as retail inflation, which hit 3% recently, starts to eat into real disposable incomes. Tim Harvey continues, “We have started to see a significant upswing in enquiries for fixed rate funding, as some borrowers are genuinely worried about their budgets. The decision to switch from a variable rate to a fixed rate mortgage is often a very personal one, but it is vital that a client has a full understanding of all the facts and implications before any decision is taken. The process should start with a review of your current rate, as many borrowers will be shocked to see previously arranged discounted and fixed rate deals have run their course and they may now be paying a lender’s high standard variable rate.”

Looking ahead, many commentators are now expecting annual house price inflation to fall back into single figures, but there is no evidence that a market crash or anything approaching it is on the cards. Tim Harvey adds, “If we do see one further UK rate rise in the summer, as some people think, that will certainly dampen domestic demand, but expatriates, who make up the bulk of our clients, are not subject to UK economic cycles. It is a pattern we have seen before, as the domestic UK buyer leaves the market, so overseas buyers may well feel the time is right to start investigating the market more closely, as they will not be competing with a strong domestic demand”.