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Monday, January 10, 2011

UK Mortgage Market Recovery?

At What Rate will the UK Mortgage Market Recover?

All eyes and ears of the UK residential property market are firmly attuned to every movement surrounding mortgage lending. This is hardly surprising after a year when the levels of property transactions have fallen. At the end of October, the Council of Mortgage Lenders reported the sixth straight month of decreased lending volumes, largely driven by the reduced levels of lending and also consumer scepticism about whether it is the ‘right’ time to move, change mortgage or indeed get on to the property ladder if that it is actually possible for some first time buyers who may need a high loan-to-value (LTV) mortgage, even on luxury homes.

Although not all buyers are directly affected by the lending restrictions for a LTV mortgage as it tends to have the most effect those at the lower end of the property ladder, it does cause overall slower transactions and stagnation. For example, take the average chain of five houses; it is often the first time buyers who start the chain off and may well need a LTV product in order to purchase. Therefore if there is an absence of this type of buyer it tends to slow down all activity regardless of where vendors sit in the chain.

It would be plausible to think that an increase in high LTV products would help this problem. Moneyfacts, the leading financial comparison website claims that there has actually been a 76 percent increase in LTV products which offer a 90 percent loan value. But before first time buyers get too excited, this rise is only such a significant number as it started from a low base.
Despite the rise in these types of mortgage products, it could also be the uncertainty surrounding interest rates that contribute to why the market has decreased in 2010. At the end of September 2010 the floating rate was on average 3.3% and the fixed rate was 4.4%. One would think that these low rates would boost the market, but in fact, the low floating rate does not tempt the majority of new home owners. Countrywide have stated that 75 percent of new home owners opt for the fixed rate product.

It is expected that the Bank of England will raise move the base rate in 2011 and many major lenders will move their own rates in anticipation of this. After existing home owners have enjoyed such low rates for the last year or two it could result in a surge of customers looking to hunt out the next best deal. For example, 40 percent of Nationwide’s customer base is currently on the floating rate.
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