Mortgage lending on the up
There were fresh signs of recovery in the housing market this morning, as the British Bankers' Association (BBA) released figures showing the third monthly rise in mortgage approvals.
The BBA figures showed that there were 28,179 home loans approved in February compared to 24,278 in January. Net mortgage lending by value also rose to £3.9 billion in February from £3.4 billion the previous month. That is also well above the six-month average of £3.3 billion.
Simon Rubinsohn, the chief economist at the Royal Institute of Chartered Surveyors, says the figures suggest that increased buyer enquiries are now being converted into deals.
However he cautioned against seeing the figures as an indication that the housing market is returning to normal. The figure is down by nearly a third compared to the same month last year and activity remains close to historic lows.
David Dooks, statistics director at the BBS, remains cautious. "Most new mortgage lending is being done by the high street banks but demand is, of course, being moderated by the impacts of the recession," he explains.
"Remortgaging activity has slowed in recent months, while higher numbers of loans approved for house purchase simply reflect the banks’ greater market share."
The government has sought to stimulate demand by, for example, green lighting the return of Northern Rock to the mortgage market, but Lord Turner of Ecchinswell, chairman of the Financial Services Authority, has suggested that mortgages should be regulated to prevent cavalier lending. One possibility would be to force homebuyers to put down a deposit of at least 15% and possibly limit supersized mortgages.
However, property groups have warned both these types of measure could make it difficult for first-time buyers to enter the market.
Howard Archer, chief UK and European economist at IHS Global Insight, says: "While buyer enquiries are being lifted by lower house prices and the Bank of England slashing interest rates, we suspect that this will not translate into markedly increasing house sales for some time to come.
"Many people are likely to be looking at houses pretty casually and will probably be very cautious about committing to buying one in the current deeply worrying economic environment. Consequently, it is still likely to need a real bargain to tempt many buyers into actually buying a house."
But there have been other indications of some activity. Earlier this month, Hometrack released a survey showing that new buyer registrations increased by 17% last month. Agreed sales were also ahead by 36%, reversing declines in previous months.
Falling housing costs were a large factor in the fall of the Retail Prices Index to 0%, announced this morning, although the Consumer Prices Index - the government’s favoured measure of inflation which excludes housing costs - showed a surprise rise to 3.2%.
The BBA figures also showed that savers have responded to record low interest rates by withdrawing their cash from the major banks. Personal deposits dipped by £100 million, the second monthly fall in a row.
Credit card lending was up by £100 million, but growth is falling and the amount owed in personal loans or on overdrafts fell by £200 million in February thanks to consumers reacting to the credit crunch by reigning in borrowing.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.