Mortgage lending flattening out


%VIRTUAL-SkimlinksPromo%Mortgage lending took a pause in May amid signs that the pace of the housing market recovery is softening, banks and building societies have reported.

Some £16.5 billion-worth of home loans are estimated to have been handed out last month, identical to the total value of mortgage lending in April, the Council of Mortgage Lenders (CML) said.
Despite holding steady month-on-month, the CML said lending is still running at "substantially" higher levels than a year ago, with May's figure standing at around 12% higher than the value of mortgages handed out in May 2013.

CML chief economist Bob Pannell said reports of a recent slowdown in housing market activity have been linked to toughened mortgage lending rules which came into force at the end of April, adding:
"It is unclear how lasting this will be."

He said the recent "softening in the pace of recovery" would appear to back up reports that demand in London, where the market has been at its most heated, is starting to cool.

The new Mortgage Market Review (MMR) rules mean lenders have to grill mortgage applicants more thoroughly about their spending habits, to make sure that their repayments will be affordable, both now and when interest rates eventually rise.

Writing on the CML's website, Mr Pannell said: "Implementation of the new regulatory regime is likely to have disrupted the normal patterns of activity, creating statistical 'fog' around the published figures.

"As this lifts over the coming months, a clearer picture as to any lasting impact of the MMR rules on lending activity should emerge."

Average UK house prices have hit a new peak of £260,000 after leaping by 9.9% over the last year, according to figures released by the Office for National Statistics (ONS) this week.

But in a sign of what is to come, property website Rightmove also reported this week that it is seeing evidence that house-sellers' asking prices are starting to come "off the boil", with property values in some parts of London appearing to have hit the ceiling of what buyers will pay.

Rightmove said the MMR rules have already dampened housing market demand, with estate agents reporting that some lenders are initially applying the new rules in a "knee jerk" way, leading to house sales falling through.

The Royal Institution of Chartered Surveyors (Rics) has also said that the recent sharp rises in some house prices and the stricter mortgage lending rules are starting to take some of the strongest heat
out of the property market.

Speculation that further steps could be taken to cool the market has also been growing. Chancellor George Osborne announced plans last week to hand the Bank of England powerful new tools which would enable it to cap the size of mortgage loans as a share of the borrower's income or the value of the house.

Mr Osborne emphasised that the market does not pose an immediate threat to financial stability now, but he also said it is important to take action to prevent any repeat of a period of boom and bust.

Meanwhile, the Bank has dropped hints that interest rates could rise sooner than expected, which would add to the costs of mortgage-holders, although any increase is expected to be gradual.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "It is still not clear how much of an impact the mortgage market review rules are having on the market and how much of the slowdown is to do with buyers questioning the prices some vendors are demanding.

"The threat of an interest rate rise is bound to be having an impact on people's inclination to take on new debt."

Mr Harris suggested that mortgage borrowers who are worried about interest rates rising might want to consider locking into a fixed-rate mortgage deal.

While there have been signs of rates on fixed deals creeping up, he said borrowers "shouldn't panic as five-year fixes are still available for a little over 3% - historically, an excellent rate".

The people who affect house prices
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Mortgage lending flattening out

They have the power to push a price higher, depending on how many other people are in the running for a home and how liberal they want to be with the truth to the buyers. In some cases, they can also do more harm than good by initially overvaluing a property. The worst case scenario is the home eventually sells for less than it would have done had it been priced realistically in the first place.

Sometimes a quick-moving solicitor can be the difference between getting the home at the price you want and getting into a bidding war or missing out entirely. If the buyer needs a quick sale, they're more likely to do a deal with someone who has a flexible solicitor who can push through the sale so it suits them.

Research by Halifax concluded that anti-social neighbours could take £31,000 off the price of an average home. If you’re selling, you should declare any problems you’ve had on a Seller’s Property Information Form, otherwise you could face a claim later on.

While an increase in Council Tax might not be too much of a deterrent to a potential buyer, plans to grant permission for new homes, a mobile phone mast or wind turbines could knock an asking price down. If you're a buyer, the local council should have details of any future planning applications and you can search them for a small fee.

A lot of traffic in an area obviously has an effect on air quality. Since 1997 each local authority in the UK has carried out studies of the air quality in its area. If an area falls below a national benchmark for air quality, it has to be declared an Air Quality Management Area (AQMA). Some residents of the Llandaff area of Cardiff expressed concern that it had become an AQMA due to an increase in traffic in the area. Whether this becomes a widespread issue remains to be seen.

Mortgage availability is a key driver of property prices. If no-one can take out a mortgage, then prices will stall and eventually fall. We've seen this happen in parts of the UK in recent years, as lenders tightened up their criteria following the credit crunch. Conversely, good mortgage availability will mean more people are competing for properties - to a seller's advantage if their home is desirable.

An outstanding local school can add around 8% to the value of a home, according to the Royal Institution of Chartered Surveyors. On the flipside, a not so good Ofsted report can take off a similar amount. If you’re concerned about a school’s performance, one way to get involved is to become a governor.

Initiatives such as the Help To Buy scheme have been credited with pushing house prices up. A buoyant economy with strong employment gives people the confidence to buy and leads to an upward shift in house prices, while rises in unemployment have the reverse effect. Planning restrictions, at both a national and local government level, affect the number of homes in a particular area.


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