Mortgage Talk reveals 2006 predictions

Amanda Jarvis

January 25, 2006

Andrew Frankish, Managing Director at Mortgage Talk looked at what 2006 has in store for homebuyers:

There is general good news ahead in the housing market for 2006, as we remain confident that interest rates will remain reasonably consistent during the next twelve months. The economy is providing some slightly conflicting indicators at the moment, but in general terms, I don't see interest rates deviating significantly from their current baseline.

In particular, the total number of housing transactions in the UK may actually reduce slightly during the year – a factor that will be more supply-led, as distinct from demand oriented. The good news for sellers will be that, if anything, this will cause some upward pressure on house values, resulting in perhaps single digit property price inflation.

Overall however, this will be nothing like as intense or extreme as the levels of growth that we saw a couple of years ago, and which were effectively unsustainable. This will provide some comfort for first time buyers who, as a group, have been struggling to gain a foothold on the property ladder for some time now.

Another factor that will assist those new to the property market is that the Chancellor recently executed a neat U-Turn, by taking residential properties out of the proposed SIPPs (Self Invested Personal Pensions) tax relief status.

In his pre-budget speech before Christmas, Gordon Brown bowed to pressure from the markets, agreeing that homes would not be eligible for tax relief in personal pension schemes, effectively reducing investor demand for typical first time buyer properties.

This can only be good news for first time buyers, who would otherwise have been competing with property investors for less expensive properties.

More good news for borrowers comes from the lenders themselves, who are increasingly considering affordability as the main criterion when considering mortgage applications. This is very much a more equitable way of determining how much to lend homebuyers, as it takes other loans and outgoings into consideration – something that the traditional income multiple approach fails to do.

From a mortgage broker's perspective, the industry must continue to sharpen up its act. We must remain customer focused, especially now that many brokers are charging professional fees for their services. Currently, 70% of mortgage transactions are handled via mortgage brokers and, with increasing product choice in the market, this is set to continue.

Brokers, however, must continue to demonstrate excellent service and product knowledge in order to capitalise on this.

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