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This year has got off to a strange start. Very quiet for the first two weeks of January, very busy for the last two, then quiet again for the beginning of February. But, clearly, we are living through unique times.

For the first time in nearly 30 years, borrowers are going to have to contend with a market in which there is more demand for mortgages than there is supply of funding. For most of the last three decades, mortgage funding has been abundant and growing all the time.

The much discussed (here and elsewhere) difficulties of the American mortgage market and its knock-on effect in the mortgage market here in the UK is really beginning to bite. As predicted, more secondary lenders are starting to withdraw from the market – Morgan Stanley’s Advantage Home Loans being just the latest – and those lenders who remain are being overwhelmed with demand when they have a fairly competitive rate.

Even though base rate has fallen as widely predicted to 5.25% earlier this month, many lenders have not adjusted their variable rate downwards by 0.25% or at all in some cases and, although the general outlook for interest rates must remain low, some fixed rates have been rising.

This price increase in fixed rates is a function of the availability of funds not necessarily the price of money. In one case, the lender has increased their two-year fixed rate from 5.25% to 5.99% even though rates have dropped by 0.25% during that period because they have to try and stem the flow of demand.

This unusual movement in fixed rates will be a continuing feature of 2008 and if you, as a borrower, are looking at today’s fixed rates and waiting for them to fall, you may be surprised by the way markets move across the year.

If the big UK banks’ results show very substantial provisions from mortgage losses and wholesale funding for mortgages from commercial banks is not made available then, apart from base rate trackers, there is no guarantee that mortgage rates today will be any cheaper later in the year even if base rate has fallen by another 0.5%.

Of course, for lenders, this widening of margins is very attractive especially if they lend less money and can enjoy the same profits. So, for the time being, the days of low margins have gone and the positions of borrowers being the masters and lenders the servants has been reversed.

With more people feeling the consequence of the credit crunch in their own wallet and the reduction in sub prime mortgages available in the market, sadly some people will become un mortgageable and with practically no social housing available, they will have to rely on the private rental market who may well – following a credit check – not wish to have such people as tenants. This could bring the nightmarish possibility of home owners becoming homeless for a while until local authorities can assist them which is a very frightening prospect.

As a result of all we see in the market today, there really is no point in waiting to see if rates become cheaper prior to reorganising your affairs if you are feeling in some discomfort. Now is the time to refinance and try and consolidate any funds which may be appropriate to consolidate before any downturn in the property market should become too precipitous.

If your looking to buy you can afford to make offers below the asking price and expect them to considered rather than ignored. This should not make 2008 a year not to consider moving indeed there will be many opportunities to purchase a new home at attractive rates and as long as you do not only regard your home as an investment but an ideal place to live this will be a good decision to make.
Meanwhile we continue to have access to the finest rates on the market. Our highly experienced team are only an email or phone call away with plenty of well rounded advice for you whether you are moving home or re-addressing your finances this month. We look forward to talking to you.

Simon Tyler
14th February 2008