September 2017

29/09/2017

Mortgage approvals rise in rush to beat threatened rate hike

The housing market in September has been dominated by news of a buoyant mortgage market with many commentators surmising that this behaviour is in response to threats of a rate rise.

Banking industry body UK Finance, a trade association combining 300 entities including the Bankers Association and the Council of Mortgage Lenders, released figures showing that gross mortgage lending rose £1.2billion in August to £24.2 billion, of which £15.1 billion was lent by high street banks.

House purchase approvals from high street banks reached 41.807 August, stronger than the monthly average of 41,133 over the previous 6 months and 11% higher year-on-year when the referendum result negatively affected the market.

England & Wales prices rise

The latest available Land Registry figures – for July – show that average house prices in England & Wales continue to rise and have reached a new record - £237,721 -while sales volumes continue to decline year-on-year, barring for June.

London prices rise

Average property prices in London marginally rose month-on-month in July (the latest month for which Land Registry figures are available) to £488,729, which is an all-time record, although sales volumes continue to decline year-on-year.

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Monthly Sales Volume Variances for England & Wales


Month cf. Sales Volume
2015
Sales Volume
2016
Annual
Variance
Monthly
Variance
March 2016

70,924

117,255

+65.3%

+42.1%

April 2016

67,784

55,412

-18.3%

-111.6%

May 2016

78,582

63,304

-19.4%

+12.5%

June 2016

89,201

78,071

-12.5%

+18.9%

July 2016

97,643

81,976

-16.0%

+4.8%

August 2016

88,590

83,586 -5.5% +2.1%
September 2016

86,348

79,829 -7.4% -4.7%
October 2016
94,494

74,292

-21.2%
-7.4%
November 2016
83,325

77,340
-6.8%
+4.1%
December 2016
84,496

82,452

-1.7%
+6.5%
January 2017

63,751 (2016)

59,156 (2017)

-6.3%

-39.0%

February 2017

67,867 (2016)

60,541 (2017) -8.2%

+4.1%

March 2017

117,255 (2016)

69,510 (2017)

-37.8%

+14.6%

April 2017

55,412 (2016)

56,511 (2017)

+6.3%

-23.9%

May 2017

63,304 (2016)

61,615 (2017)

-2.7%

+4.4%

2017 Year to Date 
Sales Volume
(Jan - May 2016 vs. Jan - May 2017)
367,589 (2016)

315,550 (2017)

-14.2%
(-52,039)


Remortgaging on the up

Remortgaging was the reason for a record proportion of valuations in August, accounting for a huge 37% of the market. This is consistent with the broadly flat sales volumes recorded by the latest Land Registry house price figures. People who have already bought houses are clearly seeking to fix their mortgages at the record low levels currently being offered by lenders and which may not remain low for much longer.

Buy to Let numbers down

In terms of people actually buying houses, many commentators have noted a decline in buy to let and cash-buying activities in the mortgage market. UK Finance found that buy to let purchases dropped 31% in the two years to July 2017 and cash purchases dropped 6% (first time buyer sales increased 17% and home mover sales increased 1% in the same period).

Many experts have stated that Government action to lessen buy to let market activity is starting to take effect, particularly regarding how proceeds are taxed. Further retardant measures are set to be rolled out in October, when any buy to let landlord wanting to hold four or more mortgaged properties will have to produce rental income evidence and a business plan to support their application.

According to the Mortgage Advice Bureau, Buy-to-let landlords borrowed 1.1% less between July and August at £135,160, down 3.1% annually. The average buy-to-let loan was £199,483, down 3.95% annually and the typical loan-to-value (LTV) in August remained at 70%.

Month Sale Price
2015
Sale Price
2016
Annual
Variance
Monthly
Variance
June

£205,747

£223,630 +8.7%

+0.9%

July

£209,200

£225,895

+8.0%

+1.0%

August

£211,391

£226,074 +6.9% +0.1%
September

£211,916

£225,775

+6.5% -0.1%
October

£212,268

£225,130

+6.1% -0.3%
November

£213,973

£226,044

+5.6% +0.4%
December

£215,023

£226,945

+5.5% +0.4%
January

£215,638
(Sale Price 2016)
£226,908
(Sale Price 2017)

+5.2% 0.0%
February

£216,083
(Sale Price 2016)
£227,484
(Sale Price 2017)

+5.3% +0.3%
March

£217,901
(Sale Price 2016)

£227,069
(Sale Price 2017)

+4.2%

-0.2%
April

£218,968
(Sale Price 2016)

£230,019
(Sale Price 2017)

+5.0%

+1.3%

May

£221,552
(Sale Price 2016)

£231,912
(Sale Price 2017)

+4.7%

+0.8%

June

£223,630
(Sale Price 2016)

£235,584
(Sale Price 2017)

+5.3%

+1.6%

July

£225,895
(Sale Price 2016)

£237,721
(Sale Price 2017)

+5.2%

+0.9%



First Time Buyer numbers stable

Evidence that first time buyer numbers are stable can be gleaned from e.surv, a chartered surveyor company, who claimed that small deposit borrowers (deposit of 15% or less) increased their market share to 20.3% of all loans.

This was also evidenced in the National Association of Estate Agents' Housing Market Report for August, which stated that sales to first time buyers and the number of sales agreed remained the same as for July – 23%.

Large deposit borrowers, i.e. those with a deposit of 60% or more – which include first time buyers – increased their share of the market in Auguest to 34.4%, up 0.2%, but this is the seventh successive month in which this group accounted for less than 35% of the mortgage market, so the medium term forecast is unclear at best.

What exactly is happening with interest rates?

The Bank of England's Monetary Policy Committee, which sets the Bank of England's base rate, has strongly hinted that the 0.25% rate, put in place in August 2016, is likely to rise above this and even above the 0.5% rate which was in place from March 2009 to July 2016.

Although Mark Carney, the Bank's governor, has hinted at rises at other times in recent years, industry responses definitely indicate that an imminent rise is thought likely with an increase to 0.5% expected in November, but further rises to as much as 1.25% by the end of 2019.

One prominent economic research consultancy claimed that the typical mortgage rate would rise above 3% by the end of 2019, hitting those on variable rate and base rate tracker mortgages.

There is difference of opinion, however, about whether the Bank of England would be in a position to increase rates after the first 0.25% hike. This is because of fears that the consumer price index will continue to rise faster than wages, thus making the economy too weak to withstand further rises.

There is also difference of opinion about what any rises might do to increase forced sales and mortgage arrears; some experts have said that work done to make mortgage applications more stringent and in particular to stress test people's ability to withstand rate rises should mean that more mortgagors' financial affairs will remain viable.

What should prospective house buyers do?

If we assume that raises are going to rise – although there are no guarantees of this – anyone applying for a mortgage should strongly consider going for a fixed rate mortgage product.

The average two-year fixed mortgage rate is currently standing at 2.22%; compare this to the average standard variable rate (SVR) which is 4.6% and the choice is seemingly clear.

If someone on that SVR rate had a £200,000 mortgage with 25 years remaining, if the rate goes up 0.25% then that person would pay £28.72 a month extra (a payment of £1,151.77, up from £1,123.05), a considerable sum when your budget is very tight.

Is a North-South divide emerging in house prices?

According to one large building society, a north-south divide in house price movements is emerging, with the East and West Midlands, Yorkshire and the north outstripping growth in southern counties.

According to pric e analysts Hometrack, house price growth in Manchester was 7.3%, and for Birmingham it was 6.7%. London in contrast was 1.9%. Savills predicted that house prices in Central London would fall 3.2% this year and remain flat in 2018. Savills did, however, predict that prices in the centre of the capital would rise 2% in 2019, but for outer London, rises would only occur from 2020, when it expects a 5% rise.

Andrew Boast, Co-founder of SAM Conveyancing, said: "News about the buoyant mortgage market is a cause for optimism in the short term, however how much of the activity is down to hedging for a rate rise is debatable and large proportion of remortgages doesn't point to house moving activity - it's still underlying that sales volumes are dismal and house prices for most remain high.

"The focus of price rises has shifted to non-London urban areas, particularly the Midlands and further north. The latter areas, however, have seen much lesser price rises than the capital has in recent years and there's an element of catch-up about it: most commentators would agree that house prices in the capital are still greatly over-inflated. It's still the case that house building remains unfit for purpose, and although first time buyers are holding steady in the proportions of people getting mortgages and buying houses, prices are still too high generally and the picture may look more rosy than it is because these first time buyers are increasingly taking out longer term mortgages.

"We can only hope that interest rate rises, if they do occur, won't catastrophically affect lending. It's very much a waiting game with all eyes on the Bank of England."

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