Bank action sees fixed rate mortgage demand dominate

Bank action sees fixed rate mortgage demand dominate

Building societies are reporting 90 per cent of new mortgages taken out with them in the third quarter of the year were on a fixed rate, as homeowners seek to protect themselves against expected increases in borrowing costs.

Building societies have maintained a 29 per cent market share in mortgage approvals amid a subdued lending environment, figures out today have shown (20 November).

This is the same as the previous quarter, but down from 31 per cent in the first three months of the year.

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The number of mortgage approvals by building societies was up 4 per cent year-on-year to 114,793 in the third quarter of 2017, according to the Building Societies Association (BSA).

Gross lending by building societies was £17.3bn, up 6 per cent on the £16.4bn lent in the same period during 2016 and accounting for 25 per cent of the overall market.

Andrew Gall, chief economist at the BSA, said: “Building societies took a sizeable market share of mortgage lending in the third quarter of 2017. 

“Activity in the market has been subdued, but there was a pick-up in remortgaging activity prior to the widely anticipated rise in the Bank Rate from 0.25 per cent to 0.5 per cent as borrowers fixed their mortgage before rates increased."

He revealed that almost 90 per cent of new mortgages in Q3 were on fixed rates, so many homeowners will be protected from interest rate rises for a number of years.

Meanwhile, savings balances were up by £1.3bn in the third quarter – down 71 per cent year-on-year.

Across the market, savings balances rose by £10.4bn, giving building societies a 13 per cent market share of new savings deposits, while banks took 70 per cent and National Savings and Investments 17 per cent.

Building societies hold savings balances of £266.4bn, an 18 per cent share of the £1,458.3bn across the market.

Mr Gall added: “Households have been dealing with prices rising faster than wages for some time, and may now be using savings to supplement their income. The rise in Bank Rate should give savers a small boost, but households may struggle to save more until wages grow faster than inflation.”

The BSA recently revealed a surge in lending to older borrowers among its members amid a shift in the demographics of people buying and paying off their homes.

It also sees significant potential for growth in modern methods of construction, such as building homes off site, as a means of addressing the UK housing crisis.

Mike Richards, director at London-based Mortgage Concepts Associates, commented: “Lenders are lenders and can be good or bad, but I think generally building societies do provide a better service than some of the corporate banks.

“A lot of the services are also more local and get a lot of local business. Some of the banks have got pretty bad press over the last few years, and people are wary of them”

Mr Richards added that building societies had pioneered later-life borrowing – a sector that is now starting to become mainstream.

He added: “I think building societies are well placed to continue with their growth, and if they have not seen that much of a slowdown [in mortgage approvals], that is pretty good.”