14% monthly increase in mortgages but government policy remains "incoherent"

10 December 2008 / by Rachael Stiles
First time buyer mortgages saw a resurgence of 14 per cent between September and October, the Council of Mortgage Lenders (CML) has revealed, raising the hopes of potential homeowners and estate agents.

House purchase loans totalled 39,900 in October, worth £5.5billion, and while this marks an annual decline of 52 per cent in volume and 57 per cent in value, it also shows a 14 per cent increase in volume and a 10 per cent rise in value on September's figures, indicating that the housing market might be showing signs of recovery.

The CML found that the increase in the number of mortgages taken up was evenly split between first time buyer mortgages and home mover loans; the mortgage lender group said that a small increase is expected between September and October, and that the larger than usual monthly increase could partly be accounted for by a summer of uncertainty over stamp duty.

As a result of tightening loan criteria and falling house prices, the average LTV (loan to value) and income multiple continued to contract, with first time buyers borrowing 83 per cent of the property's value and 3.10 times their income, on average, compared to 84 per cent and 3.18 in September.

Borrowers are also enjoying a decline in interest payments as mortgage rates and income multiples have declined, with first time buyers typically spending 19.3 per cent of their income on interest payments, down from 19.7 per cent in September, while home movers were also spending less, down to 16.1 per cent in October from 16.9 per cent the previous month.

Michael Coogan, director general of the CML, explains the "conflicting pressures" that mortgage lenders currently face, having to "recapitalise against possible future losses, service government’s preference shareholdings at 12%, pay a premium to access the Bank of England Special Liquidity Scheme, show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive rates to new borrowers and savers to maintain economic activity in a recession."

In addition to this, they are also supposed to "ensure their long term financial stability to help the UK economy rebuild itself when we are out of the recession." he added, against Government policy objectives which are "conflicting and incoherent". He calls on the Government to "decide on its key priority", because the "tug of war with lenders being pulled in every direction at once needs to end."

The Government is considering a review of its £37billion bail-out plan for the UK's banks, aimed at encouraging them to increase mortgage lending, amid concerns that it is not functioning effectively. The bank of England slashed interest rates to two per cent last week to ease pressure on homeowners who are facing rising levels of unemployment and repossessions.

The promising mortgage figures from October are encouraging to estate agents which have been languishing under the weight of unsold properties, with sales falling dramatically on last year's levels.

More hope came yesterday in the form of a survey by the Royal Institute of Chartered Surveyors (RICS), which reported a "very slight but noticeable improvement in sales."

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