We’re still none the wiser how base rates will go, says Dean Jones, head of paaleads.com

As 2010 gets underway there has been huge debate around which way interest rates are likely to move.

This type of conversation can be expected in January but this year there has even more uncertainty due to recent economic turbulence and the drastic measures taken by policy makers. With it clear that quantitative easing will have to be clawed back at some point, opinions on which way interest rates will go are split down the middle. Some economists predict lower rates for longer, whilst others see an absolute need for rates to rise this year in order to control inflation as we emerge from the recession.

Although not linked directly, the base rate will have a bearing on what happens to mortgage rates, and again, opinion is divided as to what the future holds. SVRs have been at low levels for some time, and we are now starting to see some of the building societies start to raise theirs – how long before we see some of the big banks follow suit?

In terms of what effect this speculation is having on the market, the most recent data set from the Council of Mortgage Lenders makes for interesting reading. According to the latest date available from November last year, home movers are finding themselves needing to use 10.6% of gross income to cover mortgage interest payments. This is, apart from a short period in 1996, the lowest figure since the CML started recording data back in 1974.

First time buyers are also experiencing a relief on their debt burden with the lowest level of gross income at 14.4% needed since 2004.

Despite this lower amount of income being spent in interest payments, our statistics add an interesting angle to the data. The average purchase value for properties that our leads provided in January 2009 was £165,588 – this dropped to £160,296 for this month to date. On the remortgage side however, values have risen over the last 12 months from £149,746 to £160.296.

Admittedly this data is from January rather than November, but it does reveal the drop in price on the purchase side that has been borne out on the affordability side from the CML statistics.

In my last column I noted that on late 2008, 65% of its mortgage enquiries were from customers looking to remortgage, compared to around 35% for purchases. This trend has now levelled off and we are seeing a virtual 50-50 split between the two types. So the implication is that people are looking to move, although we know that the deposits must therefore be very large in order to support this current affordability level.

So, what can we expect for the coming months? In my opinion lenders will look to increase their SVRs, regardless of whether or not the Bank of England moves the base rate. This could well affect the levels of mortgage purchases going through, although we may see lending criteria relaxed on the LTV side to ensure that the mortgage market maintains its slow recovery if SVRs increase.

Advisers are still choosing to bid double for a remortgage lead what they are paying for purchase leads through paaleads.com. The message that home movers, whether they be first time buyers or not, represent an opportunity to cross-sell other products that should not be avoided, bears repeating as advisers look to maximise income.