Forecasting the future is never easy; you only have to look at the poor points haul from my Barclays Fantasy Football team to realise that.
Predictions and speculation have long been part of the mortgage market and one topic that continues to create conjecture and headlines is interest rates.
The beginning of 2012 is no different with the Centre for Economics and Business Research (CEBR) predicting that growth of around 1% for years to come will force the Bank of England to keep the base rate at 0.5% for another four years.
In addition, it reduced its UK growth forecast from an already paltry 0.7% to 0.4%, with a still more painful contraction of 1.1% predicted if developments in the eurozone take a turn for the worse. These are sobering projections.
It had already been widely predicted that there will be no base rate rise in 2012. Yet, while raising fears in terms of business volumes, employment levels and the economy in general, such stories also provide a glimmer of hope for homeowners in terms of mortgage repayments and affordability.
CML figures recently revealed that first-time buyers’ monthly mortgage payments are at their most affordable level for nearly eight years, due to the continued low interest rates. Affordability for home movers was also at its lowest level since CML records began in 2002, with monthly mortgage payments taking up an average of just 9.2% of their income.
Barclays’ own research of more than one million customers’ accounts showed that cheap mortgage deals in 2011 made homeowners’ monthly mortgage payments the most affordable for ten years.
The survey found that, in 2011, people paid out an average of 15.4% of their take home pay to cover their monthly mortgage payments, compared to a peak of 20.5% in 2008, and hit a ten-year low of 15.2% or £488 a month in September.
This supports further research that suggested 64% of homeowners find their mortgage is affordable compared to 52% last year, and 83% say they have room to maneuver should their circumstances or interest rates change.
Meanwhile, just 40% of home owners believe interest rates will increase over the next 12 months, compared to 74% asked at the beginning of 2011, with a quarter forecasting rates will start to rise in 2012.
Encouragingly, almost three-quarters have a plan in place for when interest rates start to rise, with around a third stating they will cut back on their holidays and lifestyle spending, such as clothes and eating out, to cover any increases.
Of course, affordability was one of the integral components in the FSA’s recent final consultation paper for the Mortgage Market Review and rightly so.
The problem is that there are still tens of thousands of borrowers who, while on what may be affordable and even comfortable levels of repayments, could be saving even more in monthly mortgage repayments amidst the competitive nature of the current marketplace.
Complacency can often play its part in consumers simply sitting on financial products and not making them work as hard as they could or should.
It is evident that a range of financial factors are likely to bite again this year, but homeowners can ill-afford to forget about their mortgage just because base rate is predicted to remain at record lows throughout the year.
Putting off decisions in an uncertain economic time could prove a costly balancing act, especially as the global banking position continues to hit stormy waters, with European banks reporting difficulties across many countries and, of course, the value of the euro being lower than it has been for some time.
Amidst this external turmoil, lenders have to remain focused and intermediaries need to be on top of their game to look after and help steer their clients in the right direction.
There is no time like the present to communicate the best available mortgage deals to their client who may be in the optimum position to act.
In doing so it will help ensure that clients mortgage repayments remain affordable throughout 2012 and beyond, which will go a long way in offsetting any other rising household costs.
