Peter Gordon reviews the economic & mortgage situation

Last week we saw the bank of England hold the Bank Rate at the record low of 0.5%. Furthermore, they agreed to extend their quantitative easing programme by a further £50bn to give the UK economy a further boost. Meeting notes reveal that two members of the Monetary Policy Committee wanted more money pumped into the economy, but the other seven disagreed.

Meanwhile UK inflation continues to fall to a rate of 3.6% in January as last year’s VAT rise disappeared from the figures. The Consumer Price Index (CPI) measure of inflation fell to 3.6% from 4.2% in December. However, the Retail Price Index (RPI) which includes mortgage interest payments fell to 3.9% from 4.8%. The Bank of England says that the UK is unlikely to enter recession this year and believes growth will be around 1.2%. Although the Bank of England Governor, Sir Mervyn King, warned that the UK economy will “zig zag” this year, the BOE also forecast that inflation would drop to the Governor’s target of 2% by the end of 2012 and fall even further next year. In the meantime we have, this week, seen the launch of the government’s New Buy Guarantee scheme.

Under this scheme, which was first announced in the housing strategy last November, lenders will offer 95% loan to vale mortgages for new build properties against mortgage guarantees funded jointly by house builders and the government. At present only three lenders have committed to the scheme although the Council of Mortgage Lenders “looks forward” to other lenders joining the scheme in coming months. Their director general, Paul Smee says “New Buy mortgages will help creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a new home”.

There is no doubt that the first time buyers market needs stimulation, but we do need to see other lenders prepared to lend. Let’s hope this stimulates the housing market overall.

Peter Gordon can be contacted at A.J Buckley on 01483 426300.