Changes that can affect your choice of mortgage.
On the 28th of November the Bank of England announced their withdrawal of the funding for lending scheme for mortgage lenders at the end of this year, the reasons given; to stave off a possibility of excessive lending by Mortgage lenders that could result in a housing bubble.
The scheme allowed mortgage lenders to borrow very cheap money from the Bank of England, with that source of money not available lenders will have to look elsewhere for funds to lend, this will mean that they will have to borrow at a higher rate than they were with the Bank of England.
So what is the knock on effect? - We don't know yet is the answer, one possibility is that rates will still be offered very low and the lenders will cut their profit margins, but as pigs have not started to fly we believe it is more likely that interest rates will rise.
Over the past year we have seen house prices increase by 7% which is a reflection on renewed interest in the market and perhaps driven, in part, also by the poor supply of new houses, it was only recently that the Bank of England highlighted that mortgages are still at a historically low levels.
The change of heart has come about as they see the scheme may potentially be destabilising parts of the economy, if prices were to continue to increase, so to will indebtedness.
In addition to this announcement the Bank of England also suggested that tougher affordability tests could be introduced, from April 2014 Banks will need to assess the applicant's affordability if rates were to rise to 3% over the next five years, the view from the Bank of England is that this figure could be an underestimate.
No details about the additional changes are yet available.
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