Little cheer for mortgage market
The housing market continues to show little sign of improvement, according to the latest statistics from the Bank of England.
In November 2011, the total number of house purchase approvals was just 52,854, compared to 52,786 in October. The number of approved loans on remortgages also remained broadly stagnant – though November's figure of 31,154 revealed a slight dip compared to the 34,004 remortgage approvals in the previous month.
In response to the Bank's lacklustre figures, the Building Societies Association's (BSA) latest lending statistics point to a 24% increase in lending by building societies and mutuals in November 2011, compared to a year earlier.
Adrian Coles, director-general of the BSA, says these figures are a sign of the resilience mutuals have shown "in tough market conditions".
No change anytime soon
Experts forecast similar conditions to prevail in 2012 and lending conditions to tighten even further.
"Last week saw EU banks place record overnight deposits with the European Central Bank, which gives an insight into just how nervous lenders are right now," explains David Braithwaite, director of financial adviser Citrus Management.
"The banks are ultra-wary about each other's exposure to sovereign debt and this growing wariness could rapidly translate into reduced mortgage availability and higher rates," he adds.
Braithwaite says the problem worsens for borrowers requiring higher loan to value (LTV) ratios and predicts a split in the mortgage market between the 'haves and have nots'.
"Those with a decent chunk of equity or a good deposit coupled with stable income should have no problems at all, whereas those at higher LTVs or those who don't meet the stringent criteria of the banks will find it very difficult indeed."
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.