Land Registry Data - August 2014

Mortgage Borrowing reaches a six year high

The Council of Mortgage Lenders reported this week that mortgage lending has hit a six year high of £19.1 billion in July.  This is despite the introduction of new rules which have tightened up the conditions governing potential lending, and also growing concerns over potential interest rate rises.

This latest figure represents a seven per cent increase over the previous month, and was fifteen per cent higher than the same month last year.

The new rules require mortgage applicants to provide much more information about their spending habits and monthly outgoings, to help lenders better assess whether the repayments can be afforded. Yet the stronger lending came after the new restrictions were introduced in April.

So far this year, property transactions are up 25 per cent in terms, and the recent price gains experienced across the majority of the UK show little sign of reversing. The economic outlook for the UK is at its most positive for many years, which is helping strengthen confidence and also potential interest in property purchases.

The CML are now predicting that mortgage lending could exceed £200 billion this year, which would be the first time that this has happened since 2008.

Nevertheless, many experts predict that mortgage applications may start to dampen down, given recent messages about future interest rate rises. This month, two members of the Bank of England’s influential Monetary Policy Committee voted for a quarter point rise whilst the other seven members continued to support keeping rates at their current emergency level of 0.5 per cent.

Economy News - September 2014

The latest figures released by The Council of Mortgage Lenders show that mortgage lending rose to just over 19 billion pounds in July to reach the highest monthly total since August 2008. The figure also represents an increase of 7 per cent over June and is 15 per cent higher than July last year, despite tougher lending criteria introduced earlier this year.

Meanwhile, the Bank of England has halved its forecast for average wage growth, expecting average salaries to rise by 1.25 per cent this year, following official figures showing that average wages excluding bonuses grew by 0.6 per cent, the slowest pace of growth since records began in 2001. Nevertheless, the Bank upgraded its growth forecast by 0.1 per cent both for this year and for 2015 to 3.5 per cent and 3 per cent respectively. 

Hard on the heels of these forecasts and the news that inflation fell to 1.6 per cent in July, the Bank’s Monetary Policy Committee voted by seven to two to hold interest rates at their historic low of 0.5 per cent, unchanged since March 2009 – the first time there has been a split vote since July 2011, two members voting for a quarter percent rise. 

Base Rate increase getting closer

A subdued Inflation Report earlier in the month, and comments from Bank of England Governor Carney that were widely interpreted as ruling out any increase in Base Rate this year, led to money markets dropping, sterling weakening, and mortgage lenders started reducing their rates again.

However this week it was revealed that two members of the Monetary Policy Committee voted to increase rates.  Base Rate has been at 0.50% for over, and this is the first time anyone has voted for an increase since June 2011.

Back then three members of the MPC had consistently voted for a rise for around 6 months (one of whom, Martin Wheale, was among the two this time – the others are no longer members) but then the European situation deteriorated and pressure eased.

So whilst nothing is guaranteed, there is more confidence about future moves this time around,  and that leaves borrowers with a dilemma.

Over the last week or two mortgage lenders including Virgin Money, West Brom, Coventry, Clydesdale, Birmingham Midshires and Natwest have improved rates, and Woolwich has just launched market-leading 5-year fixed rate mortgages.

Standard form would now dictate that fixed rate mortgages start increasing again, but so far market reaction has been muted, and so it’s finely balanced.

On one hand, as a Base Rate move gets closer, pressure to increase rates will grow and waiting too long could mean missing out. On the other hand, the traditional year-end push means lenders will resist it as much as possible, and if the money markets stay low rates may yet fall further.

Only time will tell. In the meantime prospective buyers are best served by focussing on their immediate needs rather than second-guessing the market.

LAND REGISTRY DATA: JUNE 2014 (released 28 July 2014)

The latest figures show no monthly change in house prices across England and Wales as a whole, while the cost of an average house remained steady at just over 172 thousand pounds.

The overall increase in house prices year on year fell slightly to 6.4 per cent, while regionally London saw an annual increase of 16.4 per cent and the North East only 0.8 per cent. The largest monthly increase was the West Midlands at 1.9 per cent, followed by the South East at 0.6 per cent with London trailing at 0.1 per cent; all other regions showed small decreases, the greatest being Yorkshire and the Humber at minus 1.3 per cent. The London borough of Waltham Forest showed the highest annual price rise at 28.1 per cent.

Flats and maisonettes remained the fastest growing category of property type with a year on year increase of 7.6 per cent.