100% mortgages no more?

12th March 2008

It looks like we may have seen the end of 100% lending with only a small core of providers now offering this facility.  In the last month, 6 lenders have pulled the plug on 100% mortgages, leaving only the Dunfermline Building Society and Scottish Widows in the market.*  Only time will tell how this will affect the housing market but this could increase demand in the buy to let sector as homebuyers with no deposit are forced to rent rather than stepping onto the first rung of the property ladder.
 
‘Stagflation’ on the horizon
If we look at the months ahead a phrase you may hear from leading economists is ''stagflation''.  This essentially means a period of low economic growth and high inflation. ''Stagflation'' presents economists with a real dilemma as they have virtually no tools at their disposal to deal with it.

If growth is low then the initial reaction would be to lower rates and conversely if inflation is high then rates should be increased to counter this. If growth is low and inflation high then the options available to tackle this are limited. We’re likely to see this biting towards the tail end of this year unless conditions in the credit markets improve and inflationary pressures ease.

Food for thought
The areas currently impacting most significantly on inflation are average food and petrol prices.  In the UK, the average price of basic food items has increased by 17% over the last 2 years, according to figures from the Office of National Statistics (ONS).

The ONS surveyed prices of 20 everyday ingredients from 150 locations across the UK, from supermarkets to local grocers. Their analysis showed that the cost of these ingredients had risen from a combined cost of £50.03 in 2006, to £58.74 in 2008.  This weekly increase of £8.71, adds an extra £453 over the course of the year to an average grocery bill.**

Rising petrol and energy prices have also been well documented as speculation continues to grow regarding the contents of Chancellor Alistair Darling’s first budget announcement this Wednesday.  Many are hopeful that it will contain good news for home owners struggling with the current cost of living in the UK.

*BBC News, February 2008   **The Telegraph, March 2008.