Could the economy be changing for the better?

Posted: 02/02/2015

Since 2006, there has been a decrease in the number of home repossessions as levels are now at their lowest point to date due to families benefitting strongly from low level interest rates alongside the ever-growing sturdy job market.

Within a time scale of eight years in total to 2015, the number of families losing their homes has indeed decreased, this included the number of homes being repossessed by organisations such as banks and building societies which have seen numbers drop to 11,800.

This figure in particular is one of many found courtesy of the Council of Mortgage Lenders and is also the smallest recorded since 2006. As well as this there has also been a fall of 23,500 in the number of owners who possess arrears in the range of 2.5% more than their original balance which takes the figure overall down to 131,400, the lowest yet for around six years.

The news above will add towards the economy feeling much better along with family finances providing evidence that people are finding it much easier to prioritise their most important, must pay bills. Figures published during 2014 displayed the positive news with regards to jobs with the rates of unemployment falling to their lowest level since 2008. Home buyers have also obtained a certain assurance from the Bank of England that there is no likelihood of any increase in interest rates from the current historic low of 0.5% up until this year at the very earliest.

Whilst many mortgage holders will welcome this news, there is also evidence that the majority of young people are taking on gigantic loans in order to obtain the keys to their first ever home. Not only this but they will be extremely vulnerable when interest rates continue to go up and they are unaware.

Paul Smee the CML director general stated that buyers do need to ensure that their finances can cope with a rise in mortgage repayments when they do eventually come around. He also stated the following;
“Another fall in arrears and possessions is clearly welcome and shows that borrowers, lenders and money advisers are generally continuing to work well to contain payment problems where they arise, helped by an improving economy and low interest rates. But rates will rise at some stage, of course, and borrowers should be planning for that now. We welcome the message from the Bank of England that, when it raises rates, it plans to do so in a series of ‘baby steps’, matched to a careful assessment of the ability of households to deal with higher borrowing costs. Any borrower anticipating payment problems should talk to their lender as soon as possible. Today’s figures continue to show that in many cases it is possible to work through a period of difficulty, with lenders committed to helping borrowers get their finances back on track”.

Earlier on during that week, the Bank of England’s Governor, Mark Carney implemented that house price rises will more than likely fall back during next year. Surveys that have also been recently held display the current increases to exceed more that 10% a year, none the less Mr Carney does indeed believe that the figure will be much closer towards 6% during this year.

Mr Carney went on to say;
“Another fall in arrears and possessions is clearly welcome and shows that borrowers, lenders and money advisers are generally continuing to work well to contain payment problems where they arise, helped by an improving economy and low interest rates. But rates will rise at some stage, of course, and borrowers should be planning for that now”.

The Bank of England also suggests that new mortgage affordability tests coupled with restrictions on the number of loans allowed will experience a reduction in new mortgage approvals resulting in some heat being taken out of the property market.

A survey that had not long after been published revealed that the number of people looking for a new home had fallen back for the very first time in a total of 18 months. Altogether a balance of 5% of all surveyors reported demand for certain homes falling rather than increasing during the summer month of July, this marked the first net decline in buyers coming to the market seen since January 2013.

According to sources, London surveyors had the lowest expectations within the UK with regards to house price growth over the past 12 months, characteristically putting the percentage increase at 1.9%. Elsewhere higher increases are expected in East Anglia as well as Wales and Scotland.

Property economist of Capital Economics, Mathew Pointon stated;
“The economy is growing at a robust pace and the labour market data showed that the unemployment rate has dropped to its lowest since December 2008. But weak pay growth and cautious lender behaviour will help bring house price inflation down to a more sustainable rate over the remainder of the year”.

Nicole Cran, Pali Ltd

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