2012 – A set in stone look at what the future holds for mortgages, or at least our best guess.

For Mortgages, it is that time of year when ‘Industry experts’* are let loose in blogs and other media to let us all know what will be happening in the next year. They are always wrong. Wwhen the sheen of hindsight is applied, it nearly always shows how little the experts can foresee.

For those very reasons and to give me something to review/mock in 12 months here is what I say will happen and some comment on the general expectation, you will need to forgive some fence sitting and my defense of this comes from Melvyn King, he said something along the lines of “Happening next year? I don’t even know what is happening tomorrow” – all the more reason to have a bash.

Interest Rates – Let’s start with an easier one, the general consensus is the base of England Base rate will stay at 0.5% for the full year, but what can pull that off course? Not much in my mind, if the euro stays recovery will be painfully slow and wobbly meaning investors will look for safe havens for cash – non Euro government bonds (the main reason our AAA is upsetting the French).

To raise interest rates we need recovery to make investment a better risk and the need to raise rates in competition to this, linked to increased affordability of higher rates among both business and homeowners. If the Euro goes, fractures or just loses the odd Ouzo making country then we will keep low rates but the below points will be doubled in intensity at least, and it might just move the house price piece, but with pain in the short term.

That said what about Mortgage Interest Rates – as long as the Euro is us but not fixed then we will have interbank lending choked, and no amount of central bank money injections can solve this in anything except the short term, so the rates you are going to be offered will get higher than last year despite the BoE base rate still at 0.5%. This doesn’t mean that they will be unattractive, just not quite such wow factor.

Loan to value availability this will not progress very far over the year with some banks looking for more profitable areas once they have had their fill of the very safe sub 60% sector and the FSA will allow some higher LTV lending on their books, but not too much of this. This can only be driven by a recovery and liquidity in the money markets, both are not for 2012, sorry.

As for the much vaunted Buy to Let explosion, in a word twaddle. There is not sufficient appetite for lending, the overall gross lending figure will be approx. £130Bn which in my mind is about 2/3 the ‘natural’ market value and lenders that would like to get a slice of this pie will start off much more cautiously than most would like them to. Don’t look for buy to let to move house prices; it is people picking over scraps nothing more. The other thing is BtL keeping FTBs out of the market again nonsense, look at the house market, any lack of property for sale?

House Prices? £1M plus house prices will stagnate as only the ultra-rich will still be fighting each other. This means growth is only £5M+ everyone else is flat at best with some areas that are affected by the government cuts and unemployment falling by up to 5%.

It may be unpopular but property in the UK is still in real terms overpriced, it is being held up by a cabal of government policy, lenders over adherence to the FSA’s TCF (Treating Customers Fairly) and very low interest rates for mortgages which means that there is a backlog of homes that would normally have been repossessed yet have not been so far. The market is being strangled and cannot return to realistic pricing until something gives. For me I believe in a real market prices would fall by 25% and then rebound quickly to sit approximately 10-15% below where they are right now with the opportunity to move either way, at the moment prices are stuck and so are many home owners because of it.

Ok now for some ‘off piste’ bits

The economy, better than Europe (esp. if the Euro goes) but worse than the US but that is still not good, we will avoid recession in a technical sense but may as well be there as consumer sentiment and business confidence won’t move on a tick from 2011. Growth for GDP will be 1% and quarter by quarter highly variable. Most of where we are is down to confidence and it seems we are fresh out of that right now. It will be a slow hard grind, but I don’t see things getting worse, just very very slowly better.

The Euro, it will survive as either Euro-lite or as Euro-max and until they stop sitting on their hands and decide what they want then we are all in a quandary. Greece falling out of the euro will save Thomas Cook as the Drachma’s re-appearance (I reckon it will re-appear about 50% of where the euros sits,) will make a package holiday very cheap again and Brits and Germans will all hit the beach, the effect on Spain will be painful, a kick in the Costas if you like. Ireland & Portugal will watch very interested to see if it works, imagine how it would feel if a pint in Temple bar felt cheap, weird I suppose.

Olympics  – this will be great with the Brits doing well and it will distract us from all the other usual stories, but it wont provide a miraculous bounce to our and all other ecomomies, there is more chance of that from regime changes following elections in Europe that give a true mandate to sort out the mess.

* – an ‘expert was thus described by a special forces commander, “An expert is an ex and a spurt. An ex is a has-been and a spurt is a drip under pressure’ I totally agree!!

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