Brian Murphy Blog

Friday 10th February 2012

Data for the fourth quarter of 2011 tell us that the UK economy fell back once again into negative growth territory, recording a -0.2% decline according to the initial set of results from the Office of Budget Responsibility (OBR).

Historically these figures are subject to amendment, both upward and downward.

However, this did not come as a surprise as most economic commentators had forecast these results for a while. What is less clear is, will the UK manage to avoid a second consecutive quarter of negative growth come the publication of the first quarter of 2012 results and in so doing avoid a technical recession?

There is some slightly better news on the horizon with both manufacturing and service sector indices that track growth in orders and activity moving strongly into positive territory, indicating expansion in these sectors. Inflation is now starting to fall as was predicted by the BOE and this should start to feed through to reduce the squeeze on hard-pressed consumer pockets. 

I recently attended a presentation by a leading overseas banking group’s chief economist and one of the largely unnoticed factors that he highlighted in terms of putting more cash into consumer pockets during 2012 was that of the payment protection redress (PPI).

This is a significant amount of money, estimated to be £7bn that is already in the process of being repaid to credit card and personal loan borrowers who were mis-sold PPI.

For many people the amounts will be quite significant, often several thousand pounds, and for most this is cash that they will not have anticipated or specifically budgeted for. So it is hoped that much of it will be used on the type of discretionary purchases that consumers have been largely avoiding since the onset of the credit crisis.

On the housing and mortgage front, we have seen a fairly positive start to 2012 with more purchasers buying property and refinancing existing arrangements relative to the beginning of 2011.

Mortgage product numbers in overall terms surprisingly reduced a little in January over December but remain more than 20% above last year, and perhaps more importantly we have significantly more products at 90%, 95% and even the odd 100% LTV deal. Thus more borrowers with lower levels of deposit can potentially access the market.

In speaking to a number of our advisers in recent weeks, one of the issues that is increasingly apparent are that traditional first-time buyers with perhaps a 5% deposit are just not engaging with the market.

This is in large part due to the almost wholesale withdrawal of lenders from offering high LTV mortgages in 2008/9 for the reasons that borrowers are well aware of. What has not happened to the same degree is that as lenders have started to rediscover their appetite, albeit in a more responsible and conservative manner, that message is not getting out to those prospective buyers.

Advisers comment that they are seeing some first-time buyers, often supported by parents to supplement deposits up to 10% or 15%, meaning that they can borrow at lower rates of interest – but not all prospective borrowers have that luxury.

The mainstream press in the last couple of years have consistently put out the message that borrowers need a 20% or 25% deposit to access the market, and to a degree they were correct.

However, the market has and is changing and evolving and we need to get the message out more loudly that mortgage deals are available for borrowers with lower levels of deposit. 

Brian Murphy is Head of Lending at Mortgage Advice Bureau

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