Affordability is the silver lining in cloudy outlook
Back to News & ViewsAffordability is the silver lining in cloudy outlook
The summer months have been particularly difficult for the UK economy with economic data and news items all pointing towards a prolonged period of austerity for businesses and individuals, and with consumer confidence remaining at a low level.
During August, in particular, we have read several significant negative news items on the economy. On the global stage we had the debt downgrade in the US, and in the Eurozone, concerns over the stability now of both Italy and Spain to meet challenges to keep their economies stable. All of this threatens world markets and therefore impacts on UK growth opportunities.
In the UK we have seen a fall of around 20% on the FTSE stock market index, reflecting the fragility of our own economy and recent data have been weak indicating a prolonged period of low growth and low interest rates. These trends have caused investors to seek safe haven investments with government bonds (gilts) and the value of gold reaching record high levels.
As summer moves into Autumn, are there any silver linings behind this cloudy outlook ?
As a mortgage lender based here in Loughborough we have a strong interest in the local housing market. Despite all the economic gloom, house prices are holding up far better than expectations. Indeed a national survey has highlighted that the combination of low interest rates, cheap mortgages and relatively stable house prices have made house buying more affordable than at any time since 1999.
A typical first time buyer or home mover is now spending 28% of their disposal income to maintain their monthly payments, compared with 48% at the commencement of the credit crunch back in 2007. This is encouraging growth in the level of mortgage applications and in line with the national trend, the Society has seen an increase in gross lending in the first 7 months of 2011, compared to last year.
Potential and existing borrowers can also take comfort that their monthly payments are unlikely to rise sharply, now that interest rates are only expected to rise slowly from current levels, making all types of mortgage attractive in the current market. Additionally, affordability is likely to remain high in the short term as mortgage rates remain at low levels.
I remain hopeful that we can see a more optimistic picture economically in the last few months of 2011, after a very uncertain summer for the UK economy.
Colin Bradley
Deputy Chief Executive 5th September 2011
Published in Loughborough Echo September 2011