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Mortgage lenders and property agencies have just released their latest figures for the UK housing market displaying some conflicting results but the overall mood from analysts appears to be one of optimism for improvements in housing market activity.

Property prices are on the rise again according to the latest survey by the Rightmove property agency website. They reported the largest average monthly house prices rise in two years during February to leave the average residential house asking price in England and Wales at 201,600.

In their report, Rightmove put the record asking prices down to a shortage of sellers and increasing demand, especially a return of buyers at the lower end of the market which should have a knock on effect further up the property ladder.

However Miles Shipside, Rightmoves commercial director, sounded a note of caution, Sellers must not get too ambitious or the recovery could run out of steam as affordability is over-stretched again.

The Rightmove findings seems to stand in contrast to the figures recently released in the FT House price index, which shows that the, recovery of house prices since the Autumn has been extremely muted and did not gather pace at the start of 2006. The FT also reported that two other separate sets of secured loans data published about the same time, showed mortgage lending for January was down on the previous month but higher than the figure for January a year ago.

The FT house price index shows a subdued market rather than the more buoyant figures from Rightmove, or the lenders, the Halifax and the Nationwide. The FT believes that their figures based on Land Registry data provide an accurate representation of the market, with the figures from the lenders bouncing around, in ways most unlikely to reflect reality.

Many of those who are currently seeing a restrained increase in the market figures are looking towards possible future Government action through the Bank of England to increase sales. Howard Archer, the chief UK economist at financial analyst Global Insight, feels that an interest rate cut is on the cards in the early part of 2006. Mortgage comparison site Moneynet believes that a widely expected Bank of England base interest rate cut will lead to the housing market, getting a shot in the arm with many people looking for the right mortgage package to get them on the housing ladder.

Independent mortgage adviser from John Charcol, Ray Boulger, feels that an interest rate cut which will help the housing market is on the cards. “I expect to see at least two quarter point reductions in base rate this year and house prices to rise by about 5.5 per cent.

The Council of Mortgage Lenders most recent figures indicate mixed results with gross mortgage lending in January up by 32% to 23bn compared with the 17.4bn recorded in January 2005, however this was down from Decembers high of 26.9bn.

Although the recent reports appear to show contradictory and inconclusive results, Howard Archer commented that, Although the British Banking Association showed some slowdown underlying mortgage lending in January, this followed a particularly strong performance in December. Overall the data indicate the marked improvement in housing market activity – borne out by the latest report from Rightmove.

Disclaimer:

All information contained in this article, is for general information purposes only and should not be construed as advice under the Financial Services Act 1986.

You are strongly advised to take appropriate professional and legal advice before entering into any binding contracts.

Useful resources:

Financial Times house price index – http:news.ft.comcmss1d089640-fb60-11d8-8ad5-00000e2511c8.html
Moneynet mortgage comparisons – http:www.moneynet.co.ukmortgagesindex.shtml

One of the most important aspects of buying a property is the mortgage interest rate that you can obtain. After all your looking to borrow the amount required for your property for the lowest possible cost.

Standard variable rate is the typical rate of interest that lenders use and it is generally the most expensive option for the borrower.  The standard variable rate is the rate of interest decided by the lender which maybe loosely connected to the Bank of England base rate by a margin normally around 2%.
If you are on a standard variable rate then you may notice that some lenders like to involve any rate increases with effect straight away. At any rate the standard variable rate is not the cheapest option available (based on circumstance). As a independent broker we can help you take advantage of any cut-price offers from other lenders.

A fixed rate is exactly as its called, the rate of interest is fixed over a certain period of time, generally between 1-5 years. Fixed rate mortgages are generally easier to manage since you’ll know how much is needed for the monthly repayments on your mortgage. The fixed rate mortgage is ideal for people who maybe under financial stress and need to know where they stand from cheque to pay cheque. Fixed rate mortgages are also suitable if interest are set to rise in the early years of a mortgage. Be aware that mortgage providers are usually one step ahead to adjust fixed rates accordingly. A Fixed rate mortgage means you could end up stuck with paying more then others if the interest rates fall below the figure you’ve adjusted yours to.

Discount rates are a percentage of the lenders variable rate, so your repayments will rise and fall in accordance with the lenders normal rate but you will be paying at a reduced rate over an according time period. This is ideal for first time buyers as a discounted mortgage can give you a few years of breathing space. A 1 -2% discount is very good if there is no lock in period afterwards, with the benefits of this come the ability to remortgage with another lender when the discount rate period draws to an end. Unfortunately you may often find you are locked in for another couple of years on the variable rate so you will not be able to get out of this sort of deal unless you are prepared to face huge redemption penalties. Discount mortgages offer good value for money – but only if there is no lock-in period once the discount has come to an end.

A capped rate will put a barrier to your interest rate you will pay over a certain period of time. If the lenders variable rate exceeds the capped rate then it is here you will benefit, but if the interest rate falls below the capped rate then you will paying the same as many others.
Capped rates will tie you into a mortgage for a certain period of time, usually between 1 and 5 years although recently there has been an introduction of capped mortgages for 25 year periods.
Capped rates give you a mix of advantages of the fixed rates and variable rates, again something is expected in return for this, the capped rate is likely to be higher than any fixed rate you can get. Like fixed rates the capped rate will make financial sense for those who are financially stricken.

Tracker rates tend to follow the Bank of Englands interest rate with a margin either above or below the rate, this is decided by the lender.
How will the interest be charged? Ignoring the type of interest rate you decide to go with one vital question to ask is how frequently is the interested calculated. If you decide to go for a mortgage where the interest is calculated daily then you will find yourself paying less interest over a period of time because every payment will reduce the amount you owe. Current account and flexible mortgages charge interest day by day. If interest is calculated monthly you could end up paying more and you can end up waiting a month after a payment is made before the interest is recalculated. But some lenders have their foot in the door by calculating the interest payable on the amount due at the start of the year and this could make a significant difference to the amount of capital reduction over 12 months. It also means that if you make an additional payment to reduce your mortgage it could be up to a year before this reduces the amount of interest you are charged.

You can compare mortgages by looking at the amount you need to pay every month. Don’t be fooled by latest headline rates as they can be misleading as we know different companies charge different interest rates in different ways. The ideal target is a competitive interest rate that carries no redemption penalties so that it is cheaper to move your mortgage elsewhere if more attractive mortgages become available.

By law mortgage providers have to provide an Annual Percentage Rate (APR) for their products. It illustrates the true underlying interest rate, including all the charges, over the entire term of the loan. This means it adjusts for things such as annually charged interest. Comparing the APR of one loan against another can also help you get a better feel for which is the most competitive.

Here’s the first mortgage term you should learn – Standard Variable Rate, or SVR. This is the interest rate you will be paying on the total amount you are borrowing. It is usually expressed as a percentage, and is different from an APR (Annual Percentage Rate). An APR includes all costs associated with the loan, such as interest, fees, any compulsory insurances etc.

While interest rates can vary quite widely across the board, all lenders will have a Standard Variable Rate. It’s the default rate for their mortgages, and can provide a good indication of whether they are offering good deals. Comparing different lenders’ SVRs is one way to get an idea of who has lower rates generally – though there will be exceptions to this rule.

This rate fluctuates, going up or down according to the economy and the lender. The biggest factor that effects SVRs is the Base Rate set by the Bank of England. In recent years this has been kept relatively low, and mortgage interest rates have been particularly good for borrowers. However, this could change and you should bear in mind that rates could go up in the future.

Many mortgages start off with special introductory rates, and then revert to the SVR after a set period. These include capped and collared mortgages. There are also ‘fixed rate’ and ‘interest only’ mortgages available, which are covered in more detail further on in the guide. When considering mortgages with special introductory rates, you should also take into account what the SVR is likely to be once your initial period is over. Many mortgages come with the condition that you stick with the same one for several years, even after the special offer period is over. There will often be penalties if you want to change mortgage within this tied period.

Interest calculation, interest charging

Be aware that there is a difference between interest calculation and interest charging. Some mortgages calculate interest daily, which works out as fairer for the borrower as your overall balance is reducing every month, and therefore the interest will be reducing too (even by a tiny fraction, every little helps!). Other lenders calculate interest monthly or annually, although annual calculation should be avoided if at all possible, as you will be paying the same interest for a whole year despite your balance having been reduced by your repayments. You should also ensure that your interest is charge in arrears, rather than in advance.