Mortgages  

Mortgages review: In positive territory

Requiring only a 5 per cent deposit, as long as family members deposited 10 per cent of the purchase price into a deposit account with the bank, it was the first time for years that such a high LTV mortgage had been advertised on the television.

This took a major step forward with the announcement of the Help to Buy Scheme in the Budget leading to the highest number of high LTV mortgages since before the credit crunch.

Writing this commentary a year ago I predicted that Funding for Lending would give the market a boost in the first quarter of 2013 but by the beginning of quarter two I expected to see almost a pause for breath as lenders retrenched when the market became saturated at the sub-60 per cent LTV levels. At this point I predicted that lenders would face a decision as to whether to move up the risk curve and lend at higher LTVs or find some other means of hitting their targets.

The announcement of the Help to Buy Schemes meant that the second quarter lull never came, although lenders have indeed progressed into higher LTV lending and what a turnaround in the market.

In October house prices rose in every region of the UK for the first time in three years and more housing transactions were recorded than in any October since 2007, according to one house price index. House prices are up an average of 4.3 per cent year-on-year too.

Lending

At the beginning of 2013 the CML predicted we would do £156bn of lending which was seen as optimistic at the time. Now we are likely to end the year on £172bn with many commentators predicting £200bn for 2014. The even better news is that 60 per cent of this is likely to be driven through intermediaries up from about a 50/50 split at the end of last year. That will mean that advisers are likely to account for £120bn of lending next year which is 25 per cent to 30 per cent more business than this year if predictions are to be believed.

Having a look at what contributed to that, Funding for Lending was certainly a factor although the lending figures under the scheme never quite amounted to as much as the government and the Bank of England expected them to, which was probably a contributory factor in the government’s decision to pull the FLS scheme for mortgages in January, a year earlier than planned, despite their declarations that it is because it has been so successful.

A major factor of the scheme has been the positive publicity around it; it started the trend in reporting that banks were open for lending again and as much as anything this has been an influence in the turnaround, as well as the fact that the banks’ access to cheaper loans has meant that we have seen some of the lowest two and five-year fixed rates that the mortgage market has ever seen.

In fact fixed rates have been the mortgage of the moment in 2013 as increasing numbers of people have chosen to fix their mortgage in anticipation of the rates starting to rise again.