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‘Rates could hit record low if all the £70bn from FLS is borrowed’

Capital Economics is predicting that if all 35 participants in the Funding for Lending Scheme borrow the maximum £70bn, available mortgage rates in 2013 could drop below the record lows seen in 2011 when effective interest rates dropped to 3.3 per cent.

The research firm’s property economist Matthew Pointon says the effective interest rate for mortgages in 2011 was 3.33 per cent, it rose slightly to 3.38 per cent in 2012 but he expects it to reduce further in 2013.

Participating lenders in the FLS can tap into 5 per cent of their base stock of loans and are free to use for either mortgage or business lending. The base stock of all 35 lenders currently stands at £1.4 trillion, of which 5 per cent is around £70bn.

The first breakdown of FLS funds drawn down under the FLS showed in total just £4.36bn, just 6 per cent of the potential £70bn available, had been tapped.

But Pointon says: “Even with this rather paltry amount of funding, average quoted two-year fixed mortgage rates for riskier 90 per cent LTV mortgages had dropped 0.3 per cent by October compared to their level in August.”

The Council of Mortgage Len-ders’ figures last week for October showed 20,000 loans were advanced to first-time buyers, a rise of 14 per cent compared with September and up by 19 per cent compared with this time last year.

The good news extended to the remortgage market, which has been weak for most of the year. Remortgage lending increased for the second consecutive month in October at £3.5bn, up from £3.2bn in September. This remains low compared with historical levels and was 10.3 per cent lower than October last year, when lending was at £3.9bn.

Meanwhile, the impact the down-turn has had over the last five years on UK property ownership was demonstrated last week with the Office for National Statistics’ latest figures from the 2011 census.

The number of homes owned with a mortgage dropped 6 per cent between 2001 and 2011, down from 8.4m to 7.6m. In the same period, the number of homes owned outright rose 1 per cent from 6.4 million to 7.2 million.

The largest change is to the private rental market. The number of people renting from a private landlord or letting agency rose 7 per cent from 1.9 million to reach 3.6 million by 2011. The general consensus is that the central London market has peaked and will appear more subdued in 2013.



















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  • Martin Tapper 17th December 2012 at 5:51 pm

    Interesting to hear of the “Effective Interest Rate”
    (How many borrowers actually have one of those?)
    Maybe it would be helpful to know how the EIR is acutally calculated.