Is the housing market recovery losing steam?
The number of mortgage approvals for house purchases rose for the 11th month in October, but one expert says the 'recovery' is losing steam.
There were 57,345 mortgages approved in October, up from 56,205 the previous month, data from the Bank of England reveals. However, in comparison, the number of remortgage approvals fell by nearly 1,000 to 24,596.
In total, purchase and remortgage loans rose in value by £0.9 billion during the month, in line with the increase in September and above the six-month average of £0.6 billion.
Mortgage lending traditionally picks up during the autumn after the slow summer months, but these figures also highlight that confidence in the housing market is slowly returning. The fall in remortgage figures, meanwhile, reflects low interest rates.
Brian Murphy, head of lending at mortgage broker the Mortgage Advice Bureau, says: "The remortgaging figures are to be expected given the attractive standard variable rates that are available at present. However, we continue to urge borrowers to be wary of our position in the interest rate cycle and that locking into a rate now could pay dividends in the short to medium term."
Funding constraints remains on the key issues affecting lending, although the low levels of property coming onto the market is also restraining activity.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, says estate agent books are benefiting from a rise in new instructions, but these still remain at historically low levels and are not keeping pace with demand from buyers.
"This imbalance helps to explain why house prices are continuing to push upwards,” he adds. “The pace of price increases is likely to slacken as a little bit more supply comes onto the market but with new buyer enquiries at estate agents still rising more rapidly, it is likely that prices will continue to move higher in the new year even if the extended zero rate stamp duty allowance is removed."
However, Seema Shah, property economist at Capital Economics, believes that the housing market recovery is “losing steam". She believes that demand for property is fading thanks to rising unemployment and strict lending criteria.
“We are very sceptical that mortgage lending will increase significantly next year,” Shah adds.
“Although the economy is likely to grow, the recovery will be distinctly lacklustre and will not prevent employment or average earnings growth from falling further. Accordingly, we suspect that the improvement in buyer interest will falter.”
Elsewhere, data from the Building Society Association (BSA) shows mortgage approvals fell from £1,565 million in September to £1,511 million in October. This is also significantly down from October 2008, when mortgage approvals were £2,902 million.
Adrian Coles, director-general of the BSA, says: “Modest improvements in the housing market have occurred in recent months, especially when compared to the start of the year, however lending still remains subdued compared to previous years.”
He adds the funding difficulties and the low supply of properties coming onto the market, means the level of mortgage lending is likely to remain “depressed”.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
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.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.