UK House Price on decline: Mortgage falls

The mortgage markets in UK are not willing to take a respite. It has been 5 continuous months of decline in the House prices – they fell for the fifth month in a row during February. However, there were some positive signals that housing demand is beginning to increase due to the lower interest rates.

As per the news, the average price of a house in Wales and England went down by approximately 0.2% during the current month of February to around £175,000, according to property information business - Hometrack.

The yearly inflation rate for house price continued its downward journey to come at just 1.4%, which is its lowest level since April 2006.

But Hometrack said that despite the continued weakness in underlying prices, there were signs that demand was improving, with the number of new buyers registering with estate agents increasing by 7.9% during the month, compared with an 11.5% fall in January.
The group said there was also a slight rise in the number of sales agreed, which contributed to February's price fall being lower than the 0.3% slide seen during each of the previous two months.
The figures come after property website Rightmove reported a 3.2% jump in house prices in England and Wales in the four weeks to February 9, although it said some of the gain was due to market distortions following the final roll-out of the Government's controversial Home Information Packs.
Hence, there has been a modest growth in the registrations of new buyer which is being taken as a proof of increasing and firm demand, but it is backed largely by the recent interest rate cuts across the globe, with London and the South East registering the largest increases in demand.

At the same time, the rise in buyer numbers was met by a similar increase in the number of homes coming on to the market, whereas during the past the growth in demand has outstripped the increase in supply.

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Interest Rate Cuts: US, UK and India

It seems to be an almost certainty, that there will be further rate cuts in US, UK and India. There are strong signals from Fed, Bank of England as well as Reserve Bank of India, that there may be interest rate cuts in the coming few weeks.

Yesterday, it was Ben Bernanke, The Fe Chairman, who set the outlook for the coming year, and clearly hinting that the Fed is very open to cut the rates further to help the struggling US economy recover from the so called fear of recession, which some experts believe is unavoidable. How bad the US economy is is clear from the measures taken by US government recently – offering a tax rebate, Warren Buffet making an offer to reinsure municipal bonds & Fed reveals plans to help mortgage defaulters - Just to name a few.

In UK, we have the same story. The Bank of England governor has already expressed deep concerns over the falling standards of living in UK due to substantial price rise in food and fuel costs. Reuters yesterday reported that there is a strong possibility of 2 more rate cuts by Bank of England to bring some clam to the struggling UK economy.

In the emerging markets, India’s Finance Minister and Reserve Bank of India Governor is giving strong signals for a rate cut. The expectations are that in March, there will be some relief from the growing interest rates. Though in a recent statement, the RBI governor had left the field open to the banks to battle it out and many banks in India have deducted their rates for house loan, car loan, etc.

But the latest signal is the fuels price hike by the Indian government. A rise of 4% in petrol (Rs. 2) is the strongest signal, that analysts believe, is sufficient enough to indicate the government is seriously considering a rate cut. Let’s see what goes on – expectations for rate cut are in March.

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SBI Bank rate cut (SBI Home loan rate Cut)

SBI, the largest bank of the world in terms of number of branches has joined the other PSU banks like Canara Bank and Allahabad Bank, along with private sector bank like HDFC in cutting the rates. The PLR or Prime Lending Rate of State Bank of India or SBI has been slashed by 0.25% or 25 basis points.

It has been brought down from 12.75% to 12.50%. This will make almost all of the loans offered by SBI cheaper, that includes house loans (home loans) & car loans offered by SBI.
As per the news from PTI (http://www.ptinews.com/pti%5Cptisite.nsf/0/A28D4802C9AB8015652573EC002E09A4?OpenDocument):

The reduction in PLR is likely to moderate lending rates for all category of borrowers, including housing (floating rate), corporate, car loan etc. The decision follows the up to one per cent cut in housing and consumer loan rates announced by Canara Bank and Allahabad Bank.

Housing finance company HDFC and PNB Housing Finance too had reduced interest rate on housing loan. While HDFC reduced its RPLR by 0.25 per cent effective February 1, PNB Housing Finance slashed the rates by 0.5 per cent.

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UK Rate Cut: Mortgage lenders cut mortgage rates

Following the US Fed decision to cut the interest rates big time, the Bank of England has followed suit. The UK based Bank of England has also cut the interest rates by 25 basis points or 0.25%.

The mortgage lenders in UK are pledging that the rate cut will be passed on to the customers but it may take some time. So if someone has a mortgage of value £100,000, his obligations will reduce by around 16£ per month or £192 per year.
However, 55% of UK mortgage borrowers are on fixed rate mortgage, so there will be less impact of this 25 basis point rate cut in UK. There will be rate cuts for other types of mortgages like Tracker Mortgage, but the cut may be less than 25 basis points.

On the other side, the effect of rate is is compensated by other developments in the UK mortgage markets. It is learnt that two of Britain's biggest mortgage lenders, Alliance & Leicester and Britannia building society, have doubled the minimum deposit demanded from first-time buyers in the latest sign that banks are anticipating a downturn in house prices.

This is the second such rate cut announced by the Bank of England in last 3 meetings. Though the economic analysts have warned that there was unlikely to be further relief for homeowners in short term, despite evidence of a weakening economy, given the Bank's warning yesterday about inflation. All this is leading to only one single destination- the world economy going into a major recession. No doubt, the world is a global village, and everything moves in sync!

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Allahabad Bank & Canara Bank cut loan rates significantly

Initial Speculations were about Bank of Baroda, Bank of Maharashtra and Union bank going for a rate cut in home loans floating interest rates. But it was Allahabad Bank and Canara Bank who has taken everyone by surprise by suddenly declaring a significant rate cut in their various loan offerings.

The rate cut for Allahabad bank will be effective from from February 10 and the rate cut for Canara bank will be effective from February 7.

Another good news is that the rate cuts will be effective for both the existing and the new customers, contrary to what HDFC had to offer – HDFC home loan rate cuts only for existing customers. Another significant part is that these nationalized banks have deducted the rates for almost all kinds of loans unlike HDFC doing it only for home loan. Moreover, HDFC rate cut was only 25 basis points (or 0.25%), while Allahabad Bank and Canara Bank have gone for a rate cut varying from 0.25% to 1% across different loan segments. Loans like education loans are expected the get cheaper by as much as 1%.

Here are the news items from the sources:

(http://in.reuters.com/article/businessNews/idINIndia-31778720080205) - State-run Allahabad Bank said on Tuesday it had reduced its interest rates on retail lending by 50-100 basis points following the reduction in its cost of incremental funds.
The rates on deposits having a tenure of 2-10 years have been reduced by 25 basis points while rates for deposits of 61-180 days have been raised by 75-100 basis points, it said in a statement.
Shares in the bank ended 4.65 percent up at 121.45 rupees in the Mumbai market.

(http://www.thehindubusinessline.com/2008/02/06/stories/2008020652030600.htm):
Canara Bank reduced its home loan rates by 25 basis points across the board. A bank release said the reduction would take effect from February 7. The reduction would be applicable for existing floating rate borrowers as well, the release added.
The revised rates for loans up to Rs 20 lakh for five years would be 10 per cent. The rates for loans up to 10 years would be 10.25 per cent and 10.50 per cent for 25 years, the release said. For loans above 20 lakh, the rates would be 10.25 per cent, 10.50 per cent and 10.75 per cent, the release added.

Other big banks like SBI and ICICI bank are still silent. I do not expect them to keep their stand for long. Hopefully they will also have to give into the market pressure and reduce their home loan rates. Let’s hope for the best

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Home loan Rate cut by Indian banks?

After HDFC bank decides to go for a rate cut in their HDFC bank home loan rates for the new customers instead of the existing ones, it was once in last 5 years that a bank in India has actually reduced the floating home loan rates for the first time ever since 2003.

After RBI declared that it is not going for a rate cut and clearly told the banks that the market is open for them to battle it out, it was HDFC bank that took the initiative and cut the home loan rates. However, now other banks are expected to follow suit.

As per the news from CNBC webcast, Bank of Baroda and bank of Maharashtra are planning to go for a home loan rate cut in the floating home loan segment. Following the move by HDFC, there have been many speculations about the rate cuts from other banks – especially the private banks.
Though ICICI bank has clearly denied the possibility of a home loan rate cut in any form, Bank of Baroda (BoB) and bank of Maharashtra (BoM) are said to be in the deciding phase about whether to go for a rate cut or not. There are also rumors that even Union Bank might come up with a rate cut.

If that happens, then it will be a big respite for the floating rate home loan borrowers who have witnessed only an upward trend for the home loan rates in the last few years. Though the news is not confirmed, still in rumour stage, let’s hope that thing work in favour of the common man.

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