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Mortgage Boom
by Sarah Modlock
Mortgage boom
Mortgage madness gripped the UK in August according to latest figures. There was an increase in all types of lending, although the biggest leap was in remortgaging.
Information from the Council of Mortgage Lenders reveals that gross mortgage lending rose by 9% to an estimated £27.5 billion in August, one of the highest figures on record. Remortgaging went up by 15% to £11.7 billion, reaching its highest level since October 2003. This almost certainly reflects borrowers taking advantage of lower interest rates and switching to cheaper deals as their two-year fixed rates ran out.
Affordability remained stable with typical first-time buyers borrowed around 87% of their property value, representing 3.22 times their income. Typical movers borrowed 68% of their property value, representing 2.95 times their income. However, the pricing of both fixed and variable-rate products continued to fall, with the average fixed rate in August at 5.23% and the average variable rate at 5.61%. This pricing differential prompted a further increase in the popularity of fixed-rate business, which accounted for 54% of all loans in August, the highest proportion ever since monthly records began in 1998.
'The doom-mongers' prophecies look to have been wrong, as lending has continued to strengthen over the summer,' says the CML's Michael Coogan. 'Although the market remains far from spectacular in terms of transaction numbers and house prices, the prospects of a significant market correction are receding. The fact that the housing market is holding up is likely to be welcome news for the MPC, as it struggles to reconcile the very different pictures emerging from different sectors of the economy. We continue to expect a moderate market for the foreseeable future'.
Duncan Pownall watches the market for Bradford & Bingley: 'For much of this summer the big lenders, principally Halifax, Nationwide and Alliance & Leicester, were embroiled in a ‘rate war' reducing their fixed rates in a desperate bid to attract and retain custom,' he comments. 'Deals at sub 4.3% were offered as loss makers in a bid to gain precious market share. This has certainly worked as the latest figures show fixed rate popularity is at its highest level since CML records began - 54% of borrowers plumping for the security they offer. Although many borrowers on tracker products are benefiting from the recent reduction in base rate, the majority of lenders had already priced this quarter point cut into their selection of fixed products making them equally competitive.'
Pownall says that fixed rate deals have held fairly firm during the period and expects Halifax and Nationwide to hold their rates unchanged for some time. However, as soon as one lender re-prices upwards, he expects the other is sure to follow suit.
Housing market continues to head for ‘soft landing'
Reports by RICS (the Royal Institution of Chartered Surveyors) and the CML demonstrate that there has been a marginal uplift in activity and confidence, with lending for house purchase up 6% in August to £12.5bn. Recent data also suggests property prices are continuing to stabilise - Halifax reports annual growth at 2.5% and Nationwide's growth rate for the twelve months to the end of September is 1.8%. Halifax also reports that the gap between earnings growth and house price inflation has narrowed, which would signify that house price growth is slowing to a more affordable and sustainable rate. Despite this, however, first time buyers are still struggling to step onto the property ladder, with the number of first timers still hovering around the 30% mark, according to CML figures.
'We expect to see high levels of remortgaging, especially at the beginning of the fourth quarter of this year, as borrowers coming off the last of the cheap 2003 fixes look to avoid facing a big hike in their monthly payments,' Pownall says. 'There may also be a seasonal increase in home purchasing, as buyers rush to get into a new home before Christmas. Looking at the economy, the high street holds its breath, waiting to see if consumer spending increases in the run up to Christmas, a crucial time for retailers and a key indicator of public confidence. A decision on base rate may be swayed by how consumers react during the festive season,' he concludes.
If retailers make more noise about their slumping profits, it is entirely possible that the MPC may consider a rate cut before Christmas. Watch this space.
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