Adrian Coles, director general of the Building Societies Association, said that it may help to ease conditions in the mortgage market. ‘However demand is currently subdued particularly as a result of low consumer confidence,’ he added.
But it might not be so good for those wanting to buy property overseas. Robin Haynes, managing director of Currency Index, said that injecting more money into the economy has the effect of diluting sterling.
‘The Pound tends to suffer, giving us lower exchange rates for sending money abroad. Sterling is particularly vulnerable at the moment since the underlying UK economy is still weak. For example we saw negative growth in the last quarter of 2011. Exchange rates have been propped up by weakness in other economies, particularly in the eurozone, where the single currency has been struggling as the sovereign debt crisis rolls on,’ he explained.
‘So while the recent problems in Europe and also in the USA have given overseas property buyers better exchange rates than they might expect, many clients are now locking in their rates using forward contracts, to make sure they are not exposed to a depreciating Pound in the coming months,’ he added.
He pointed out that currently rates for buying Euros are nearly 8% better than in July 2011, and for US dollars, over 3% better than a month ago.
‘As a note of caution, a year ago when Euro rates were up at 1.20, the Pound quickly fell back, losing over 8% by the summer and giving overseas property buyers a serious headache. Fixing exchange rates in advance is easy with a reputable currency broker, and can save a small fortune,’ said Coles.
Ray Boulger of independent mortgage adviser John Charcol said that most mortgage rate changes over the last month have been increases, although a few lenders have gone against the trend. ‘In particular funding pressures in the wholesale market as a result of the Eurozone crisis have continued to push up the cost of tracker mortgages and, to a lesser extent, short term fixed rates,’ he said.
‘The only bright spots for borrowers are five to 10 year fixed rates, which are fairly stable, higher loan to value mortgages and buy to let mortgages. As lenders look for better margins as a result of higher average funding costs the spread between rates charged on low and high LTV mortgages and has continued to fall,’ he explained.
‘Over the last year the differential has on average narrowed by well over 0.5%. Buy to let rates are typically 1% to 1.5% higher than comparable residential rates, after factoring in the impact of the generally higher fees on buy to let, but the increased competition in buy to let is also beginning to have an impact on rates in this market.
‘On the plus side for funding costs the previously inexorable rise in three month Libor has come to an end over the last month with the rate of 1.08% currently just off its recent peak of 1.09%. The fall is not significant but the fact that the upward trend has been stopped may be,’ he added.
