Many clients have been asking what the implications of the new government will be on the mortgage and ultimately the housing market.  Not surprisingly, it is very early days and no one really knows what the exact effects will be but even at this early stage there are some indications.

The new government has again and again insisted that reducing the budget deficit (the amount borrowed by the United Kingdom against our income) is the priority in the years to come.  The markets that invest in the UK appear to like the sound of this and we have seen a slight strengthening in Sterling recently against the Euro.  When there is not much interest in investing in the UK, the Bank of England will consider putting up interest rates to help investment, but when the investors are still interested in investing, there is no need to increase interest rates.

Some of economists are speculating that interest rates will stay low for some time to come, although, this will all depend on the economy, our reduction of the deficit and our ability to recover from the recession.

On the flip side of the coin, the Eurozone is having some issues with initially Greece and more recently Spain requiring large financial input from their European partners.  In practice, this means that lenders who lend to banks in these and other countries may be less likely to be able to recover these debts, so those debts become more risky now than when they were originally issued.  This of course, affects the lender’s credit worthiness and banks who lend to them see their lending as a higher risk, which in turn means that these lenders are likely to increase the interest rate charged for the borrowing and so on... 

We have seen the affect of this in the increasing LIBOR rate  (London InterBank Offered Rate) – the rate at which banks lend to each other.  This has been rising despite the low level of the base rate.

The final link in the chain are people like you or I who are taking out or who have mortgages – so what does this mean in practice to people like us? 

• Well if you have a mortgage already and have a product with your lender (not their Standard Variable Rate), you should be unaffected by the LIBOR rate increases as your product was defined before the cost of borrowing changed,  unless your mortgage is tracking LIBOR, in which case you may see a rise in the cost of your mortgage payments.
• If you are thinking of taking out a new mortgage or changing products and the cost of borrowing continues to increase, we are likely to see fixed, discounted and tracker rates begin to rise, as the lenders pass on the additional cost of borrowing on to us.

So if you have seen a property or are thinking about taking a new product from your existing lender or looking at the whole market to ensure that you get the best available, now could be a good time to do so in case borrowing rates do start increasing.

If you would like independent advice on mortgages or protection, feel free to call Alpha Independent Mortgages on 0844 5008300 or visit Alpha Independent Mortgage’s website – www.alphaim.co.uk

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