Low mortgage rate uncertainty in 2012

Low mortgage rate deals may disappear, this is the growing concern within the UK. The fate of the market in 2012 will be largely determined by how European ministers deal with the debt crisis.

Problems with the eurozone started to affect low mortgage rate deals in the second half of 2011. Mortgage pricing started to rise in autumn 2011 following a rate war between lenders earlier in the year. The price increases were in part, a result of the increasing margin between bank rate and three-month Libor, which is a key indicator of lender confidence.

The Council of Mortgage Lenders lowered its 2012 gross lending forecast from £150bn to £133bn, its director general Paul Smee said the health of the market will be determined by European ministers’ ability to resolve the crisis. He added: “As a by-product of sovereign debt worries, lenders face challenging conditions in wholesale funding markets and these could have negative effects on the cost and availability of UK residential mortgages through some or all of next year. But if European leaders navigate a comprehensive and sustainable way through eurozone problems, current financial market stresses could heal and the previous pattern of gradual improvement in cost and availability of funds could re-emerge relatively quickly. This, in turn, could have a major benefit on UK growth prospects and boost household confidence and appetite to borrow.”

Economists predict house prices will drop in 2012, with all areas suffering. If ministers do not find a speedy and effective answer to the eurozone crisis and if low mortgage rate deals end as a result, 2012 could be a difficult year for intermediaries.