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The mortgage and property month - April
by Sarah Modlock
The mortgage and property developments in April.
Base rate
The Bank of England left the base rate of interest unchanged at 4.75%.
The mortgage market
Gross lending in March totalled £20.1 billion, up 13% from £17.8 billion in February, according to the latest data from the Council of Mortgage Lenders. However, this was still 19% lower than the same time last year. The proportion of total mortgage lending for house purchase remained low but stable at 40%. Remortgaging fell from 49% of total lending in February to 46% in March, with a corresponding increase in further advances. Within loans for house purchase, the proportion made to first-time buyers rose in March to 32%, up from 29% in February. That equated to an estimated 22,000 loans. The pricing of fixed rate products fell a little in March – to 5.46% from 5.55%. Variable rate pricing remained stable at 5.92%. Take-up of fixed rate products remained at around 40% of the total.
Commenting on the current market situation, CML Director General Michael Coogan said: 'The market remains stable, and on course for the "steady as she goes" scenario that we envisaged when we published our forecasts at the beginning of the year. The looming general election may result in a short-lived lull in activity, but overall the market is likely to continue performing in line with expectations. As there is a risk of an early interest rate rise, households should consider what steps they can take to ensure that they can continue to meet their mortgage commitments. With the prospect of higher mortgage costs, we expect the remortgage market to remain attractive, particularly for borrowers moving from a special deal on to a standard variable rate in 2005.'
The property market
The balance of power remains with buyers, as prices fell for the eighth consecutive month, according to the Royal Institution of Chartered Surveyors (RICS)'s monthly housing survey. There are indications that some sellers are holding on to unrealistic expectations which is restricting sales activity. March saw house prices fall further, at a slightly faster pace. 37% of chartered surveyors report a fall in house prices, down from 32% the previous month.
Property sales were also affected by an early Easter and fears of further interest rate rises. The continued uncertainty also dampened new purchase enquiries which remain stagnant. After rising over the past two months, newly agreed sales also remained flat. After the large increase in property stock on surveyors' books last month, March saw a slight fall, though the property supply is still 23% higher than this time last year. With restrained market conditions, surveyors envisage further price falls. However, they are optimistic that sales will increase as underlying economic conditions improve further, with prospects for new jobs remaining strong in 2005. Prices remain weak across much of the UK, and have fallen in the Midlands and Southern England with more moderate declines in the Northern regions. However, they remain stable in London and are rising more strongly in Scotland.
RICS national housing market spokesperson, Jeremy Leaf comments: 'While there are no signs of a collapse, housing market activity showed little change in March, but we expect good job prospects and stable interest rates to lead to improved sales as the year progresses. Getting on the property ladder is currently easier for first-time buyers as buyers increasingly call the shots. Sellers must be more realistic if they want to secure a sale.'
Buy to let
Paragon Mortgages' March Buy-to-Let Index reveals a further increase in yields, which rose for the second month in a row to 6.82%, up from 6.76% last month. Yields have risen steadily over recent months, from 6.61% in September 2004. This steady rise in yields comes on the back of a significant pick-up in rents achieved by landlords since last summer, and a stabilisation of property values. The average rent has risen from £9,524 in August 2004 to £10,520 in February 2005 – an increase of just under £1,000 in 6 months.
John Heron, managing director of Paragon Mortgages, says: 'With demand for rented accommodation from tenants steady or growing in many areas and this demand not matched by supply, landlords have been able to achieve higher rents and therefore higher rental yields.'
At the same time, the rate of increase in property values has stabilised over the past 3 months, with a rise of just over £1,000 or 0.7% since November, compared with 22% over the 12 months from November 03. 'Prices have clearly stabilised over the past 3 months,' continues John Heron. 'If the current rate of increase is sustained over the rest of the year, we could expect annual house price inflation to decline to less than 3% by the end of 2005. Landlords are frequently able to negotiate more attractive prices than owner-occupiers. People buying their own home are inevitably more emotionally involved in the deal than are investors, who treat property purchase dispassionately, as a pure business transaction. Identifying the growth in demand from tenants, investor landlords have been taking advantage of the good supply of properties on the market at competitive prices. Whilst owner-occupiers have been biding their time, investors have been growing their portfolios from an average of 11 properties last May to a current average of 13,' Heron explains.
And finally....
Some experts predict a base rate rise by the summer. This, coupled with the Council of Mortgage Lenders' latest market commentary, which shows signs of a gentle slowdown in the housing market, may leave many homeowners worrying about how they could be affected. With this in mind, IFA Promotion, the organisation promoting the benefits of independent financial advice, has produced a free guide, offering people help on the best ways to budget for possible changes in the housing market. Guarding against housing market uncertainty covers a spectrum of issues including: re-mortgaging; renting out a room; cutting costs; downsizing; negative equity; how to manage mortgage payments if interest rates rise and where to get expert, independent financial advice.
For a free copy of the guide, together with details of local independent financial advisers who can talk through your options in detail, call the IFA Promotion consumer hotline on 0800 085 3250 or visit www.unbiased.co.uk
New products
• Bank of Ireland Mortgages has enhanced its lending criteria across a number of product areas, including Residential, Buy-to-Let, True Self-Certification and 1st Start for first time buyers.
• Coventry Building Society has updated its mortgage portfolio to include new products for all borrowers - house movers, first time buyers, remortgagors, buy to let and self certification.
• Alliance & Leicester has launched a new range of mortgages, which include two and five year fixed deals plus two year trackers.
• Britannia Building Society launched a new two, five, and 10 year fixed rate mortgage.
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