U.K. mortgage prospects for 2014

BoE monetary policy decisions will affect real estate

If you are reading this, then hopefully you have saved up enough money to either take out your first mortgage, or upscale to a new home with a larger mortgage. 

The prospect of taking your first step onto or up the property ladder and moving into the house of your dreams is often exciting. However, before you dive head first into the sometimes confusing, and often infuriating world of mortgage paperwork, there are certain forecasts you should be aware of before taking out your mortgage in 2014.

The first and one of the most important things to consider is the recentnews from the BoE that they are maintaining mortgage loan rates at 0.5% until the unemployment rate in the country is below 7%. We are currently sitting at a 7.7% unemployment rate, so interest rates are likely to stay fixed at 0.5% for the foreseeable future (about 3 years). This is good news for investors, correct?

The answer is a non-committal potentially, as a lot will depend on property inflation rates. If property prices inflate by 6% as forecast then higher priced properties, due to increased demand for a restricted product, coupled with easily available mortgages could cause a new property bubble. A burst in this bubble, when prices reach an unsustainable level, will lead to a sharp decline in value for the property market and now that home you have a £400,000 mortgage for is now only worth £300,000.

If however property inflation rates stay at a more manageable 4-5% then 2014 is going to be a great time to invest in property, as a bubble will be a lot less likely and mortgages are still going to be available at lower rates. This could even provide a much needed kick start to help the economy recover to where it was before the crisis of 2007/2008.

What happens, however, if a miracle was to happen and unemployment drops below the magical 7%? The BoE would convene a meeting of the Monetary Policy Committee and probably vote to raise the interest rate. Saying where to at this point in time would be purely speculative, however it was around the 4.5% mark at the start of 2007. An increase of 4% on your mortgage rate is going to set a lot of people back.

This has its pros and cons however. It is bad news that a lot of people who had worked hard to save a deposit can no longer afford the mortgage rate. On the other hand it would definitely help to reduce the chance and risk of a property bubble occurring and setting the economy back to where we have been in the past few years.

Overall though the outlook for mortgage applications looks bright for 2014, providing we can avoid that property bubble, and with the interest rate fixed at 0.5% it should be easy for you to calculate what level of mortgage rate you are going to get the best result from. If you’re on a tracker at 4% above base rate (0.5%) you’re going to be better off than paying a 5% fixed rate mortgage.

About the Author: Jamie writes for the Guernsey estate agents, Livingroom, as well as to provide readers with an in-depth property knowledge and experience.

* Image license: Albion80, RGBStock royalty free