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Mortgage Lending Is Increasing – Are There Any Downsides?

July 2, 2013

Posted by Simon Misiewicz on 1st July 2013

The Council of Mortgage Lenders (CML) has suggested that mortgage lending has increased by 21% since April 2012 (1).

The number of mortgage applications in April 2013 saw an increase of 60% compared to the same time last year (2).

These figures are echoed by Nationwide who saw their own lending increase by 17% (3).

If more people are buying properties then what do you think will happen to house prices?

Mortgage rates have fallen since August 2012.

Currently a two-year fixed mortgage rate stands at 3.82%, compared with 4.66% in May 2012.

Chief economist at the CML, Bob Pannell, said:

“The comparison with April last year, 21% higher, is flattered by the temporary dearth of house buying activity immediately following the closure of the stamp duty concession.”

The true underlying position is that April is likely to have been one of the strongest months for lending activity since late 2008, but not as strong as the year-earlier comparison suggests. Gross lending on a seasonally adjusted basis has been running comfortably above £12 billion for several months, but this is still barely half the average level of lending seen in 2003-4”. (1)

Brian Murphy, managing director of the Mortgage Advice Bureau, said:

“What comes next in the development of Help to Buy will determine just how many people can join the rush to secure a good deal on property, whether or not they are first-time buyers or second-steppers”.

“We are still waiting to see how the mortgage guarantee will work in practice, but in the meantime the competition between lenders means there is plenty of reason to shop around and seek advice to secure a favourable offer”. (2)

Howard Archer, chief European and UK economist for IHS Global Insight, said: “While a moderate rise in house prices over 2013 looks ever more probable, a strong upward move remains unlikely given a still challenging and uncertain economic environment despite the recent signs of limited improvement”.(4).

But what are the risks and considerations?- Interest Rates increasing, that’s what!

So, mortgage lending is increasing and house prices do the same. Combine house price increases with an interest rate increase and you could possibly be seeing another property bubble burstingor as Mervyn King suggests “Ticking time bomb”, as he suggests that an increase in rates are on the cards (5).If you are an investor, this of course will have a detrimental effect on your property portfolio. I am not here to be doom and gloom, but I hope that you will consider your investments wisely. There are opportunities to be considered here:

  • Change to fixed rates, but check the interest rates and fees
  • Buy properties below market value
  • As house prices are in demand, flipping is a good strategy

David Hollingworth of mortgage broker London & Country also stressed the importance for borrowers to prepare for when an interest rate rise finally arrives.

“Those with significant mortgage debt that are worried about how a normalisation in interest rates would affect them can take some measures to ease the pressure,” he said, also suggesting that fixing your mortgage rate could be a way to ease any potential payment shock. “There are even some 10-year fixed deals available that insulate borrowers in the long term, although it’s always important to consider whether more flexibility might be needed,” he added (5).

Looking at the new Tesco Bank range, the two-year fix comes in at 1.74 per cent, three years is 2.29 per cent and five years at 2.49 per cent – all with fees of £1,495 (£1,300 product fee and £195 booking fee).Examining the five-year fixed Tesco deal in a little more detail, it’s up against the 2.74 per cent Norwich & Peterborough Building Society mortgage with a much smaller £295 fee (6).

If you contact Simon this month he will provide you with a free “Property Investment Evaluation” session via Skype to look at your potential property investments to make sure that you are getting the best returns on your money. 

For more information please contact us on 0115 946 1991 or Clik Here to email

References:

(1)Mortgage Lending Up

(2)Mortgage Applications Up

(3)Notionwide Mortgage Lending Share at Record High

(4)Bank of England Reports Mortgage Market Lift

(5)The Truth About Mortgages

(6)Mortgage Rates Close To Bottoming Out



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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk