As fears of a house price bubble loom, Governor Mark Carney stops mortgage lending offered by the Funding for Lending scheme.
The Funding for Lending scheme allows lenders to borrow at ultra-low interest rates lending to small business and mortgages to homebuyers such as first time buyers, home movers, remortgage buyers and buy-to-let investors.
From February next year the scheme will not apply to mortgages as the property market shows signs that house prices will rise 10% next year after a 7% rise last year.
The scheme will continue to allow lending to small businesses.
Mortgages rates may rise
The Funding for Lending scheme was launched in August 2012 and extended earlier this year to January 2015.
An early end to the scheme could see mortgage rates rise as the majority of the £80 billion of credit cost lenders as little as 0.25% was directed to mortgage lending.
The loss of additional low cost funding could see rates rise by as much as 1% returning to levels before Funding for Lending was launched.
As a result the cost of borrowing will increase for all types of homeowners including first time buyers, home movers and remortgage buyers.
To keep the mortgage market buoyant lenders will need to use savers money to lend to homebuyers offering higher interest rates. The higher cost of money means mortgage rates will also increase.
The equity release mortgage buyer has benefitted from falling costs and can secure fixed rates typically from 5.9% upwards without any evidence of earnings, important for borrowers with only pension income.
Help to Buy to continue
Mark Carney has said the Help to Buy scheme will not change.
Phase two of the scheme offers an loan guarantee from the government of 15% of the property value with the homebuyer providing a 5% deposit.
The scheme is available to first time buyers and home movers but not to people buying a second home.
The Bank of England has the power to assess the Help to Buy scheme annually from 2014 and can reduce the £600,000 property value limiting the schemes impact on the housing market.
In addition the Bank can recommend the current 0.9% fee charged to lenders to be increased to reduce the attractiveness of the scheme to lenders.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.
Learn more by using the property value tracker chart, mortgage cost calculator and equity release calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to improve your quality of life, pay for care at home or reduce inheritance tax owed by your beneficiaries.
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