Lenders ease mortgage rationing

Lenders have been making it slightly easier for borrowers to take out a mortgage, according to the financial information service Moneyfacts.

The number of mortgages requiring a minimum 15% deposit has risen from 189 in the past month to 226, the highest number for more than a year.

At the same time the number of mortgages requiring a 20% down-payment has fallen, from 136 to 117.

However 66% of mortgages still need at least a 25% deposit.

Darren Cook of Moneyfacts said the easing of mortgage rationing was particularly good news for first-time buyers.

“It is encouraging to see that maximum 85% loan to value, or 15% deposit, requirements have increased in numbers this month,” said Darren Cook of Moneyfacts.

“[This] might be an indication that some mortgage providers have kept an eye on the housing prices, regained some confidence and realigned their outlook towards risk,” he added.

Ray Boulger at mortgage brokers John Charcol said the change was a reflection of increased competition between lenders.

“Northern Rock has come back into the market in the past three weeks with some increasingly aggressive pricing,” he said.

“They have increased the competition for lower loan-to-value (LTV) deals, so other lenders have been pushed towards lending more at higher LTVs,” he added.

The average first-time buyer still needs to put down a 25% deposit according to recent figures from the Council of Mortgage lenders.

But with house prices rising in the past few months, lenders have lost some of their fear of losing ever larger sums of their money if their borrowers default.

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More signs of house price rises

UK house prices rose for the third consecutive month in September and showed the first quarterly increase for two years, according to the Halifax.

The average home rose in value by 1.6% in September compared with the previous month, to £163,533.

And prices in the three months to September increased by 2.8% compared with the previous quarter.

The Halifax, now part of Lloyds Banking Group, said that increased demand and a lack of supply were key to the rise.

However, both could change and “constrain” prices in the coming months given the economic climate, said Halifax housing economist Martin Ellis.

Data divergence

The Halifax said that the annual change in prices showed that the value of the average home was 7.4% lower than September last year.

 

There are some signs that the improvement in market conditions is encouraging more people to put their properties up for sale
Martin Ellis, Halifax housing economist

This figure is based on a three-month average, but comparing September 2009 with September 2008 shows that prices were still lower than a year ago.

This marks a continued divergence between the figures provided by the Halifax, and those published by rival the Nationwide Building Society.

Last week, the Nationwide said that prices in September had returned to the same level seen a year earlier.

However, both agree that low interest rates and fewer properties on the market have been key to the “recovery” in prices.

“The marked improvement in affordability due to the reduction in both property prices and interest rates since mid-2007 has been a key factor in stimulating higher demand,” said Mr Ellis.

But he said these conditions could change.

“Continuing increases in unemployment and low earnings growth are likely to constrain the rise in demand,” he said.

“There are also some signs that the improvement in market conditions is encouraging more people to put their properties up for sale.

“This development could loosen market conditions by alleviating the current shortage of supply and curb the pace of house price growth evident in recent months.”

The Bank of England has held the bank base rate at 0.5% for the sixth month in a row.

It says it will also continue with its £175bn quantitative easing scheme but will not extend it this month. Last month the Monetary Policy Committee injected £50bn into the economy to create up to £175bn on the UK’s balance sheet.

As of September 3 some £140bn worth of assets had been purchased under the QE scheme. The MPC expects the QE programme to take another two months to complete, with the scale of the programme continuing to be kept under review. Edward Menashy, chief economist of Charles Stanley, says the governor of the Bank of England Mervyn King stated that QE would take six months before it was possible to assess whether it was working, and those six months are now up.

He says: “On the positive side, QE has depressed gilt yields by as much as 50 to 100 basis points and corporate bond yields by even more. “QE has also boosted UK equities, although it is difficult to quantify how much money investors have switched into shares from gilt sales.” But on the negative side, Menashy says that there have been few signs of an increase in bank lending with money from gilt sales remains stuck in the banking system. Commercial bank reserves at the Bank of England have risen from £45bn (in March 2009) to £161bn (in July 2009), the latest available date. And net lending in July 2009 fell at its fastest pace since records began in 1993, and he says that M4 lending to the private non-financial companies remains “anaemic”. Menashy adds: “The failure of the banks to lend can be attributed to the lack of solvency amongst the banks themselves, the fear of incurring more bad debts in weak economy, or the desire not to borrow on the part of indebted households and companies.”

House prices rise for fourth month in row

House prices rose at their fastest rate in more than two and a half years in August, the fourth straight monthly rise, figures from Nationwide Building Society showed.

Published: 7:00AM BST 27 Aug 2009 (Daily Telegraph)

The average cost of a home in the UK jumped by 1.6 per cent during the month as a shortage of homes for sale bolstered prices, according to the Society. The annual rate at which prices are falling also continued to ease during August, narrowing to just 2.7 per cent, down from 6.2 per cent in July.

The group said prices were now 3.2 per cent higher than at the beginning of 2009 at an average of £160,224, although it added that they were still 14.4 per cent below their peak in October 2007.

Martin Gahbauer, Nationwide’s chief economist, said: ”The exceptionally low level of interest rates offers some explanation for why house prices have not repeated the very sharp falls of 2008.” He said low interest rates had fed through into lower mortgage repayments for existing homeowners, making it easier for people who lost their jobs to continue to afford their home loan.

As a result fewer people have been forced to sell their home as is normally the case during a recession, and this has contributed to shifting the balance of supply and demand in favour of sellers during 2009. Low interest rates have also helped make property more affordable for first-time buyers, boosting demand, despite the ongoing problems in the mortgage market. But Mr Gahbauer warned that when interest rates did start to rise again it could make the recovery in the housing market ”bumpier” than might be expected following the recent run of price rises.

The latest figures on the property market come just days after the British Bankers’ Association said the number of mortgages approved for house purchase had risen to a 17-month high during July. The Council of Mortgage Lenders also reported a 26 per cent rise in mortgage lending in July to its highest level for nine months, as buyers continued to return to the market. But despite the recent pick up in housing transactions, economists have warned that the number of homes changing hands still remains well down on normal levels.

The ongoing problems in the mortgage market are also continuing to limit the number of people getting on to the housing ladder, despite some recent signs that lenders are beginning to loosen their lending criteria. As a result, it is thought any recovery in the housing market is likely to be gradual, with some commentators warning that further price falls cannot be ruled out.

Loans to homebuyers ‘23% higher’

The number of mortgages for homebuyers granted in June rose by 23% compared with May, according to UK lenders.

Some 45,000 home loans were granted for house purchases – just 6% lower than the same month the previous year, the Council of Mortgage Lenders (CML) said.

The group said the mortgage market had stabilised, although this was far from a return to the housing boom.

First-time buyers were still being squeezed, as they required an average deposit of 25% of a home’s value.

Low numbers

The CML figures showed that the number of loans granted in June to people buying a house was at its highest level since July last year, when the housing market was already entering the doldrums, and amounted to £5.9bn. 

KEY FACTS
23%: Rise in mortgages for house purchases from May to June
26%: Typical deposit in June
28: Average age of a first-time buyer
40: Average age of a home-mover
Source: CML

“Low interest rates and realistic selling prices have helped generate a welcome increase in transactions. But there is some way to go before we reach normal levels of activity,” said CML economist Paul Samter.

“There are tentative signs that lending criteria are easing, but remortgaging demand is likely to remain subdued whilst interest rates stay at current levels.”

The average house purchase loan rose from £105,000 in March to £111,000 in June, signalling the recent increase in the typical house price.

But there has been little change in the average deposit needed for these loans. This was 25% in March and 26% in June.

Getting on the ladder

First-time buyers – who on average get onto the property ladder at the age of 28, according to the CML – were granted 17,200 loans in June, worth £1.9bn. This was up 26% on the number given out the previous month.

The figure was 7% lower than a year earlier, when the average first-time buyer put down a deposit of 13% compared with a deposit of 25% in June.

“If first-time buyers are coming back to the market, the market can move,” said Ashley Brown, director of mortgage broker Moneysprite.

“There have clearly been some major withdrawals from the bank of Mum and Dad in recent months although when this source runs dry the number of first-time buyer loans could fall again, which will negatively impact the entire market.”

Home-movers had an average age of 40, the CML figures showed, consistent with the long-term average.

The number of loans for remortgaging increased by 13% from May to 34,000 loans in June, with lower interest rates “dampening” the demand for remortgaging, the CML said.

Fixed-rate deals were the most popular form of mortgage in the second quarter of the year, lenders said, making up 78% of new lending in June owing to greater availability.

House prices

The value of properties in the UK rose again in June, according to the Department of Communities and Local Government (DCLG).

There was a rise of 1.6% between May and June, driven by the rise in value of bungalows (up 2.4%) and flats (up 2.2%). The average home was worth £191,423.

The less volatile three-month on three-month measure showed that UK prices rose by 2.6% in the quarter ending in June, compared with a fall of 3.8% the previous quarter.

Prices paid by first-time buyers were 11.7% lower than a year ago, the department’s survey found.

In the year to June, house prices fell by 23% in Northern Ireland, 12.2% in Wales, 10.7% in England, and 7.1% in Scotland.

In the English regions, the price decreases ranged from an 11.5% drop in the South East and Yorkshire and the Humber, to an 8.6% fall in the West Midlands.

A survey by the Royal Institution of Chartered Surveyors (Rics) revealed that the shortage of homes for sale in the UK had propped up prices in July.

The latest survey found that 8% more surveyors expected prices to rise rather than fall further during the next three months. Meanwhile 29% more predicted sales levels would increase.