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UK house prices are stuck in the doldrums

UK house prices are set to tread water while incomes rise, making property more affordable, says Merryn Somerset Webb.

The numbers aren’t looking good for residential property investors. House price growth in the US fell to a mere 1% at the beginning of this year, according to the latest report from the Dallas Federal Reserve. Look at global data across the 18 largest economies in the world and things don’t look much more encouraging. This could be the year in which we see “global growth dip to its lowest pace in a decade”. Investment is slowing fast, says Oxford Economics.

The UK is no outlier here. The Nationwide index and the Rightmove Asking Prices index show prices and asking prices respectively to be all but flat. The Halifax House Price index shows a better annual number but suggests prices fell mildly in June. You can see the same trend in Hometrack data, which suggests that the falling prices we have seen in London are beginning to spread: over a third of homes are now in areas with annual price falls (the higher value the market the more likely this is), although the absolute levels of falls is small. So what next? Most analysts expect the market to tread water from here (at best) – although if a new PM were to pull a Brexit deal from the hat we could of course see a little London bounce.

A flat market…
This is probably correct. There is still some support for prices. Housing starts are falling slightly (so the supply of housing is not rising much). Interest rates are low and will go lower if Brexit goes horribly wrong. The banks’ wholesale funding costs have also edged down, and that should soon feed into mortgage rates. At the same time wages have jumped (year-on-year growth excluding bonuses hit an 11-year high in April) and household disposable incomes are also on the up.

That makes houses – even at today’s silly prices – seem more affordable. Prices, says Nationwide, are likely to be at least supported by “healthy labour market conditions and low borrowing costs.” That said, there isn’t much to push prices up either. They are still high relative to incomes. The tax and regulatory hit to buy-to-let is discouraging buyers in that market. An unwelcome (to big property owners, at least) overhaul of property taxation may be on the way. And the Help to Buy scheme (which has played a clear part in pushing prices up) is likely to be at least scaled back soon. Put all those factors into the mix and it is hard to see a rebound in prices in 2019 “or beyond” says Capital Economics.

… is good news
The key thing to bear in mind there is that this is not bad news – unless you very recently paid too much for a house. One thing we have all agreed on in the UK for decades now is that houses are too expensive relative to average earnings. That makes it tough to get on the ladder and tough to move up the ladder. Add today’s high levels of stamp duty to your cost of buying and it’s nasty out there.

But the fact that house prices are not really rising in nominal terms, combined with the small real rise in wages over the last two years, is beginning to change this situation. In 2007 Nationwide’s house price to earnings ratio for the UK was 5.42. At the end of 2016 it was 5.25. Today it is 5.03 times. That’s not ideal – but if this gentle drift down continues and we end up at more like four times, it will suddenly be an awful lot easier to buy (and sell) houses. That would be a very good thing.

Head for Hampshire
Nevertheless, for those of you determined to find the next hot location in the property market and make your fortunes the easy way, Anne Ashworth writing in The Times has an idea for you. She suggests checking out age profiles. Why? Because the younger the crowd, the higher the potential for growth. In areas with an older demographic, you can expect to see sales and downsizing (the cash from which then gets spread around children and grandchildren who won’t necessarily live in the area). In one with a younger demographic you can expect to see the opposite.

Look back over the last decade, says Lucian Cook of Savills and you will see this in action. Those areas with large concentrations of people in their 40s have seen much greater price appreciation (up 56%) than elsewhere. With that in mind, look at somewhere such as Aldershot in Hampshire. There 39% of households are headed by someone between 31 and 40. They won’t be downsizing any time soon.

By: Merryn Somerset Webb

Source: Money Week

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UK holiday let market creating opportunities for investors

UK: Thousands of Britons are opting to spend their holidays closer to home and as a result, holiday let property investors are seeing the potential business opportunities this presents.

That was the opinion of Commercial Trust Limited chief executive Andrew Turner, speaking to Property Reporter, in which he said the holiday and short-term lettings market would experience “significant” growth in 2019.

Last year, estate agent Savills analysed data which revealed 39 per cent of the British public who purchased holiday lets in 2018 opted for staycations in domestic UK properties. That contrasts starkly with the figure of 14 per cent, which was recorded to the economic recession in 2017.

Meanwhile last month, Cottages.com reported a 23 per cent rise in listings in its holiday property portfolio in the space of 12 months.

Turner’s findings included the following:

Market demand
Thousands of Britons are choosing to staycation domestically due to reasons such as Brexit and the resultant economic and passport and customs uncertainty. Tourists are still coming over to visit the UK from abroad and coupled with the weaker pound, it is leading to a larger pool of people looking for short-term letting options when travelling.

Differences in tax
Government changes to buy to let have gradually restricted the amount of mortgage interest tax relief that landlords can claim. By April 2021, landlords will be able to claim a flat level of 20 per cent as a tax credit, unlike in the past when they could previously claim 100 per cent of mortgage interest.

For furnished holiday lets, landlords can still claim all of the interest paid, as well as capital allowances on wear and tear and furniture replacement, while also potentially qualifying for capital gains tax relief as a business.

According to HMRC rules, a property must be available to let for at least 210 days a year and it must be let for at least 105 days in order to qualify for mortgage tax relief.

According to Turner, many landlords now seemingly use properties as a savings vehicle for their future pensions.

Yields
Yields on holiday lets can outperform more traditional forms of buy to let.

2018 statistics from holiday property fund Second Estates showed landlords with holiday homes in Wales were able to achieve yields of 11.7 per cent over a 12-month period.

Yields are dependent on several factors, including property value, the going rate for rent and the number of bookings or demand in the area. Second Estates predicted a further rise for holiday let yields in the coming years.

From 2018 to 2022, the holiday property fund said it envisaged an average 14 per cent return across the UK, with the North West and East of England expecting to achieve returns of around 16 per cent.

Turner summarised by saying that the holiday lets market is thriving and will continue to attract keen interest from property investors. Circumstances with uncertainty over Brexit have created a market for buy to let landlords to look for further entrepreneurial ways to generate and maintain a profit.

He also advised anyone who is considering re-mortgaging and operating a holiday let to speak with a specialist first to fully comprehend the implications of costs.

By Paul Stevens

Source: Short Term Rentalz

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UK housing market shows some signs of recovery – RICS survey

UK housing market showed tentative signs of recovery in June as interest among buyers rose for the first time since shortly after the 2016 Brexit referendum and sales also staged a rare increase, a survey showed on Thursday.

The Royal Institution of Chartered Surveyors (RICS) house price measure – the difference between members reporting price rises and falls – improved to -1, the strongest reading since August last year, from a revised -9 in May.

The reading was stronger than a median forecast of -12 in a Reuters poll of economists and RICS said it pointed to flat property prices over the next two quarters.

Prices in London and the south east of England continued to fall but rose across the rest of the country.

Britain’s housing market slowed sharply after voters decided to leave the European Union more than three years ago, but several indicators have suggested a stabilisation in recent months.

“The latest data provides further evidence of the sales market settling down,” Simon Rubinsohn, RICS chief economist, said in a statement.

“But I don’t get the impression from the insight provided by contributors that this is fuelling hope of a significantly more active market going forward. Many of the factors that have provided a challenge during the first half of the year remain unresolved.”

EU leaders in April delayed Britain’s deadline for the leaving the bloc until the end of October and investors are increasingly worried at the lack of clarity.

Both contenders to become Britain’s next prime minister have said they are prepared for a no-deal Brexit if necessary.

RICS said its survey showed new buyer interest rose for the first time since November 2016 and newly agreed sales edged into positive territory for the first time in 28 months.

There were also signs that sellers were feeling more confident — RICS’ new instructions indicator turned positive for the first time in a year.

Reporting by William Schomberg, editing by Andy Bruce

Source: Yahoo Finance UK

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Landlords falling behind on latest legislative reforms

Property is a hugely popular asset class among investors in the UK. Indeed, there are an estimated 2.5 million landlords across the country, and many more who would not consider themselves “a landlord” by trade, but whom rent out a second property they own.

However, over the past 12 months it has become apparent that the increasing regularity with which new legislative reforms have been introduced is a source of significant stress for professional landlords.

Most will know well that the UK government has been making sweeping changes in the buy-to-let space. From hiking up stamp duty to new rules around housing standards, investors who let residential properties to tenants must now navigate a more challenging landscape if they are to profit from this market.

To delve further into this topic, in June 2019 MFS commissioned an independent survey of more than 400 UK landlords. We asked them about how aware they are of the new legislative and regulatory reforms that have been introduced in the past year, and whether they have taken action to account for these changes.

The findings were illuminating. For one, we found that 30% do not understand the changes to House in Multiple Occupation (HMO) licensing, which came into effect in October 2018 to stipulate on the minimum sizes of rooms.

Furthermore, almost one in three (28%) landlords admitted to not fully knowing what the abolition of Section 21 means. The reform, which was implemented in June 2019, aims to prevent unfair tenant evictions.

A similar number (27%) said they do not understand the tenant fees ban (June 2019) or how it may affect them.

MFS’ research uncovered a similar lack of knowledge when it comes to tax reforms that are likely to impact UK landlords. A quarter (25%) said they are not up-to-date with the latest changes to reduce tax relief on buy-to-let mortgage repayments, while even more (28%) do not understand the reforms to inheritance tax with regards to passing down properties.

The legislation and regulation governing the UK’s rental market is constantly evolving, and landlords are quite clearly struggling to keep pace with the change. From HMO regulations to the abolition of Section 21, these are significant reforms that, for the most part, are rightly designed to protect tenants, create more transparent processes and promote better practices.

Our research shows a clear need for the government to do more to educate landlords around the reforms it introduces. Landlords, too, must be more proactive in seeking out information to ensure they abide by the new rules.

What’s more, the study highlights just how important it is for property investors and their brokers to work with service providers who have strong knowledge of the everchanging legal framework. Doing so ensures landlords will not be caught out by changes that could bring about significant financial repercussions if ignored or not properly adhered to.

By Paresh Raja

Source: Mortgage Introducer

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Property schemes are confusing for investors

Investors are struggling to understand the risks in property investment platforms, research has found.

Secured property lender Fitzrovia Finance polled the clients of 20 of the top UK schemes and found three quarters wrongly believed first charge secured loans were riskier than second charge mezzanine options, while seven per cent did not know which was riskier.

The study, carried out in June, also showed 18 per cent of retail investors felt some of the property investment platforms failed to clearly explain the level of risk involved in their investments, and that returns ranged from a modest 2.8 per cent to 15 per cent, reflecting a significant variance in risk and return.

Brad Bauman, Fitzrovia Finance’s chief executive officer, said: “The industry must strive to ensure that each opportunity promoted to private investors is clearly explained, the risks are transparent and the returns appropriate. This will help ensure that investors have the necessary information they need before deciding to invest.

“There are some ‘property’ investment opportunities being offered to private investors where, for example, the returns are 8 per cent or 14 per cent – or even higher. These will include a lot of features that represent higher levels of risk such as second charge loans or unsecured debt, and this must be clearly explained to investors.”

Property investment platforms facilitate investment in individual properties or a property portfolio, and often promise high returns.

They have started to sprout up in recent years in many guises including crowdfunding, P2P lending, real estate investment trusts and bonds, and their aim is often to provide retail investors with access to property investments.

One of the easiest ways to invest is through P2P lending, where investors lend money to borrowers, with the cash secured against residential and commercial properties or new-build developments.

Fitzrovia’s findings followed last month’s announcement that later this year the FCA will introduce new rules which will mean individuals will not be permitted to have more than 10 per cent of their assets in peer-to-peer investments, unless they have taken financial advice.

The rules are designed to prevent investors taking what the regulator considers excessive risk, and will require platforms to assess casual investors’ knowledge and experience of P2P before they allow them to invest.

There will also be a more explicit requirement to clarify what governance arrangements, systems and controls platforms need to have in place to support the outcomes they advertise.

Christopher Woolard, executive director for strategy and competition at the FCA, said: “These changes are about enhancing protection for investors while allowing them to take up innovative investment opportunities.

“For P2P to continue to evolve sustainably, it is vital that investors receive the right level of protection.”

By James Colasanti

Source: FT Adviser

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Housing market could take hit in Labour IHT reform

The housing market could take a hit if inheritance tax is reformed the way the Labour party intends, experts have warned.

Last month the Labour Party’s independent report on cutting inequalities in land ownership had called for the abolition of inheritance tax in a bid to stabilise house prices.

Under the plans, inheritance tax would be replaced with a lifetime gifts tax levied on the recipient on the gifts received above an allowance of £125,000. When this lifetime limit is reached, any income from gifts would be taxed annually at the same rate as income.

Since then the Office of Tax Simplification’s review of the IHT rules — which currently levies a 40 per cent charge on estates over £325,000 — has been published, calling for a reform of the seven-year gifting rule, alongside a new allowance and abolishing the tapered rate of Inheritance Tax.

Experts warned the ‘bank of mum and dad’ — which currently acts as the eleventh biggest UK lender in terms of buying property — would be scuppered by Labour’s £125,000 limit.

According to data from L&G, parents and grandparents will help buyers purchase a total of nearly £70bn of property wealth this year, much of which could be taken away by the taxman under the plans.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said a reform of IHT rules like the one Labour is suggesting would “fill parents with horror”.

She said: “Inheritance tax is already Britain’s most hated tax, but at least at the moment they can take steps to avoid it.

“They can pass as much of their wealth to younger members of their family throughout their lifetime as they want and as long as they live for seven years after making the gift, it’s not counted as part of their estate for inheritance tax purposes.”

The Labour report estimated that taxing gifts through the new system would raise £15bn in the 2020-21 tax year — £9.2bn more than under the current IHT system and in a ‘more progressive way’.

Last month (June 30) shadow chancellor John McDonnell confirmed the Labour Party was looking at the reforms in the report as a range of ways to distribute wealth more equally in the UK.

Ms Coles said the current rules on lifetime giving had helped encourage people to share their wealth within their family before their death and the earlier they make these gifts, the better from a tax perspective.

This means younger people benefit from payments when they need them most and the new rules would remove this incentive, she added.

Dan White, of White Financial Services, said there was “no doubt” that IHT could have an impact on potential buyers.

He added: “That said, if property prices drop then any potential ‘gift’ monies could be less relied on and may not require such large ‘gifts’ to help towards deposit funds.”

Ruth Whitehead, of Ruth Whitehead Associates, said: “The housing market could definitely take a hit as it would definitely impact on middle class families in the south of England trying to support their first time buyer offspring to buy in a very expensive market.

“But, Labour are only ‘looking at’ lowering the inheritance tax allowances. This would only come to pass if Jeremy Corbyn won a general election and became prime minister.

“Which isn’t going to happen any time soon, if at all. So I don’t feel that is, as yet, a matter of concern.”

By Imogen Tew

Source: FT Adviser

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Property investors call for more government support

The majority of UK property investors (97%) feel the government is not doing enough to support the UK property market.

Meanwhile, 33% of property investors called for a reversal on the changes to tax relief on buy-to-let mortgages and 17% believed introducing a tiered tax system on buy-to-let property would better support the UK property market.

Gareth Lewis, commercial director at MT Finance, said: “It is interesting that the stamp duty surcharge and removing it is more important to property investors than mortgage interest tax relief – it suggests this group of investors are the ones who are most likely to expand their portfolios.

“The government has introduced a series of changes to slow down an overheated property market and reduce the number of buy-to-let investors over the years.

“Property investors have been dealt some serious setbacks, impacted by changes to stamp duty and changes to tax relief but despite the changes, many remain resilient and still see property investment as a key tool for retirement planning, and a good home for their monies whilst interest rates are low.”

When asked who they would vote for if a general election were called today, half revealed they would back the Conservative Party, 18% said the Liberal Democrats, followed by the Brexit Party at 16%. Only 3% of property investors revealed they would back the Labour Party in a general election.

By Michael Lloyd

Source: Mortgage Introducer

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UK house prices surge 5.7 per cent in June

UK house prices shrank by 0.3 per cent in June compared to the previous month, according to data released today.

But the growth rate rocketed 5.7 per cent on an annual basis last month, according to Halifax’s latest house price index, to take the average UK house price to £237,110.

That compares to May’s £237,837, when Halifax recorded an annual growth rate of 5.2 per cent – the best in two years until today’s figures.

Russell Galley, managing director of Halifax, said: “This extends the largely flat trend we’ve seen over recent months.

“More generally the housing market is displaying a reasonable degree of resilience in the face of political and economic uncertainty.

“Recent industry figures show demand looking slightly more stable, with mortgage approvals ticking along just above the long-term average.”

However, he warned that a “major restraining factor” for the UK housing market was the lack of houses up for sale.

“With the ongoing lack of clarity around Brexit, people will be looking for more certainty in the coming months, both to encourage them to list their property and to create the confidence needed to encourage buyers,” Galley added.

“Of course, the likelihood of continued historically low mortgage rates will underpin prices in the near term.”

Halifax figures are a ‘complete outlier’
Howard Archer, chief economic adviser to the EY Item Club, dismissed Halifax’s data as a “complete outlier in annual terms”.

It compares to Nationwide’s annual growth rate of just 0.5 per cent in June and Office for National Statistics (ONS) data of 1.4 per cent growth for April.

“There are signs that housing market activity may have got a little help from the avoidance of a disruptive Brexit at the end of March, but the overall benefit looks to have been limited,” Archer said.

“Improved consumer purchasing power and robust employment growth has also recently been helpful for the housing market but this has recently shown some signs of levelling off.”

Meanwhile, former Royal Institution of Chartered Surveyors (Rics) chairman, north London estate agent Jeremy Leaf, also questioned the figures.

“It paints a confusing picture with the annual house price increase actually greater than it was last month while comparative figures from 12 months ago are also unreliable,” Leaf said.

Buyers ‘looking beyond Brexit’
Leaf added that Brexit uncertainty has softened UK house prices, with today’s figures likely to dampen buyers’ appetites as prices continue to fall.

However, he said that many buyers have stopped delaying purchases and are pushing ahead with house hunts even amid the political uncertainty hitting the market.

“We are finding that some buyers, including some investors, are looking beyond Brexit and political uncertainty and are prepared to go ahead if they can perceive value,” he said.

Brian Murphy, head of lending for Mortgage Advice Bureau, said: “The market trend continues to follow a similar direction of travel to the one that we’ve observed since the beginning of this year; those who need to move are doing so, regardless of politically-driven news headlines, and are far more likely to make the decision to purchase based on their own circumstances should the need dictate.

“The availability of competitive mortgage products is also providing many with support, as lenders remain very much ‘open for business’ with some repricing downwards of late in order to gain more traction in the market.”

What will UK house prices do after Brexit?
EY’s Archer predicted that even in the event of a Brexit deal, the UK’s prolonged departure from the bloc will hamper growth of UK house prices over 2019.

The accounting giant predicts prices to rise only around 1.5 per cent this year.

“Prolonged uncertainty will weigh down on the economy and hamper the housing market,” Archer said.

“Consumers may well be particularly cautious about committing to buying a house, especially as house prices are relatively expensive relative to incomes.”

While a lack of homes on the market and very low interest rates should prop up the market in the meantime, Archer warned the nature of Brexit will dramatically impact UK house prices.

With a deal, house prices could grow by around two per cent over 2020.

But in a no-deal Brexit, Archer warned house prices could “quickly drop” by as much as five per cent.

By Joe Curtis

Source: City AM

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Action plan to solve the housing crisis

Major but pragmatic changes are needed to combat the UK’s housing crisis according to an economist, broadcaster and author.

Liam Halligan was guest speaker at a talk arranged by Lupton Fawcett law firm at DoubleTree Hilton Hotel, Leeds.

He has written a book called Home Truths, about why the UK faces such a chronic housing shortage and what can be done to address it.

Halligan stressed the importance of ensuring local authorities benefit from “Planning gain uplift”, so when new housing developments are approved they have cash to fund the infrastructure needed to support the additional properties.

He explained: “It means that if you sell land, you sell it either at its existing use or the state compulsorily purchases it and the gain from when planning permission is awarded is shared between the landowner and the state at the local level.

“So the local authority awarding the planning permission shares in the planning uplift, which can amount to millions of pounds.

“This money is ring-fenced to go into building the infrastructure that makes those new homes into a place where people will want to live.

“If you share the gain and the local authority is legally obliged to use that money to build new amenities, there will be far more willingness among elected officials to grant planning permission.

“We also need to provide more land more cheaply so small to medium sized businesses can build houses. SMEs don’t just sit on housing permissions because they can’t afford to.

“The Government has to get real about selling off its own land for housing.

“The NHS has a lot of central city sites which it will never use. But this land is not being sold because the Treasury says you have to get ‘best value’ for it, and no one can agree what the best value is.”

Halligan warned failure to solve housing shortages would cause social and political upheaval.

“Generation rent is getting older and angrier,” he said. “They are less likely to follow their parents’ generation in terms of voting Tory once they own their own home – because they are not being able to own.

“We’re no longer a nation of home owners in the way we once were. You can’t support capitalism if you don’t have any capital.

“Unless we solve this, popular consent for liberal capitalism is going to be severely dented.

“We built 2.8m homes in the 1950s, 1.8m in the ’80s, 1.5m in the 2000s and and 1m in the eight years since 2010. We have a backlog shortage of 3.4m-3.8m homes since the late 1960s and early 1970s.

“The average home is now worth eight times the average wage. ‘Beds in sheds’ has become a national problem, not just in London. These are slums – that’s the situation we’re now in.”

Halligan said: “My own parents were working class people who were able to buy their own home by working hard. That revolutionised their attitude to the UK and to England.

“Now however, we have the sons and daughters of immigrant communities who can’t buy, so they have no stake and no incentive to maintain order. Home ownership is a bulwark against populism.

“We are losing the social progress and societal cohesion that comes with home ownership. There’s a lot of tension at the moment. It feels like 1981 again.”

Halligan said big house building companies had far too much power.

Citing the 2008 breakdown of private housing supply, he noted that back then small companies building 1 to 100 units per year, constructed 28% of homes, medium sized companies building 101 to 2,000 units per year, constructed 40%, while big companies developing 2,000 or more units per year, were responsible for 32%.

He compared this to the figures for 2015 which saw the proportion of homes made by big housing companies leap from 32% to 60%, while the equivalent figure for small firms slumped from 28% to 12% and medium sized firms fell from 40% to 29%.

“One in three planning permissions that are granted lapse,” he said. “In London it is one in two. That is crazy.

“I think planning permissions should be planning contracts. If you don’t deliver you get fined.

“We’re in a logjam. Large volume house builders admit they don’t always want to build at once, in order to maximise local prices.

“The eight big house builders who build 60% of homes are so powerful in local areas they can drip-feed the market.”

By Miran Rahman

Source: The Business Desk

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Products for first time landlords reaches record high

The choice of products available to first time landlords has reached a record high, according to research.

The number of deals available to first time landlords has risen to 1,405 today, up from 645 five years ago. The past 12 months alone has seen 137 products enter the market.

This is in spite of the introduction of stricter lending criteria by the Prudential Regulation Authority, the phasing out of tax relief on mortgage interest payments by April 2020 and increased stamp duty on second homes.

Rachel Springall, finance expert at Moneyfacts, said: “Entering the buy-to-let market hasn’t been without its hurdles, and almost two years since the PRA introduced rules expected to tighten lending, the move doesn’t seem to have shaken up lenders attitudes to attract first-time landlords.

“In fact, the number of deals available to these individuals has now boomed to a record high.”

But Ms Springall added that while the increased choice was a positive for prospective landlords, those currently invested in property were feeling the strain.

Data from the Office of National Statistics showed London private rental prices rose by 0.9 per cent in the 12 months to May 2019, the highest annual growth seen in almost two years.

Ms Springall said: “This rise may well be linked to the staggered loss of mortgage interest tax relief, which in turn has seen landlords seeking out other ways to boost their income.”

In July 2014, an average two-year fixed rate stood at 4.01 per cent, while the average five year fixed rate was 4.68 per cent.This compared with July 2019, when the average rates are 2.97 per cent and 3.52 per cent, respectively.

Ms Springall warned, however, that borrowers must ensure they weigh-up the true cost of any deal before they commit.

“Choosing the lowest two-year rate in the market from Barclays Mortgage at 1.46 per cent would cost £20,901 in repayments after the first two years, which includes its £1,795 product fee,” she said.

“However, if they opted for a deal with a lower fee, such as the mortgage from Post Office Money priced at 1.48 per cent with a £1,495 product fee, they would have saved £255, as the repayment would be £20,646 over two years.”

By Jennifer Turton

Source: FT Adviser