The property market is set for troubled times over the next year or two after the number of UK mortgage approvals fell by 14% in August. Figures from the British Bankers’ Association showed that the number of approvals given the go-ahead for home purchases in the month was 61,051, down from 71,178 in August last year.
The number of UK mortgages fell for the third month in a row, as buyers left the market, uncertain about the financial future. For all UK mortgages, including re-mortgages, the number of approvals was 168,291 – down 8.8% from the same month in 2006. The total value of loans was £19.1bn. For house purchases the figure was £9.38bn, down £1.1bn from July, and down by £10bn compared to August last year.
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Britannia Building Society’s chief executive Neville Richardson said bringing interest rates down by a quarter of a percent would not be sufficient to solve the crisis in the UK mortgage market. He said: “The mortgage market will be challenging. Just lowering the interest rates will not work. Getting some liquidity back into the market would help.” Mr Richardson thought that the chances of a property crash were low, thanks to good economic fundamentals.
Housing market facing tough years ahead | Personal Finance | Reuters::
all of the analysts polled said UK housing was too expensive compared with a group -- as they have been many times over the boom that has tripled average
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Unlike Northern Rock, Britannia uses the global wholesale money markets) for only 25% of its borrowing (Northern Rock’s level was 75%), with 60% coming from its customers, so it should not suffer like Northern Rock did.
Nationwide’s house price figures showed a fall in the annual rate of inflation from 9.6% in the previous month to 9% to mid-September 2007, and the downward trend is expected to continue.
Further, the UK’s biggest housebuilder, Barratt Developments reported that sales of new houses were down by 10% following the Northern Rock crisis.
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Worse news for UK mortgage holders is that mortgage lenders are beginning to ask for larger deposits from first-time buyers as the credit crunch continues to bite. Deals that enabled borrowers to take out a mortgage with only a small deposit have been withdrawn by many lenders. Some deals even asked for no deposit at all. Industry watchers see this as the start of a process of providers tightening their lending conditions – and other building societies and banks are expected to follow suit.
Uk Mortgage products that lent 95% or 100% of the property values have been scrapped by the Norwich & Peterborough Building Society (N&P). Their maximum loan-to-value is now 90%. For a £200,000 property, the borrower will now have to find £20,000 for the deposit – in addition to other fees and costs, such as stamp duty (which on a £200,000 property would be £6,000). Accord Mortgages, part of Yorkshire Building Society, has also scrapped its 100% lending on UK mortgages. Alliance & Leicester has stripped back its 95% lending to only a few products, and Leeds Building Society requires a 100% loan to have a guarantor.
In particular, these changes to policy will affect first-time buyers, as the less a deposit is, the easier it will be for them to get on the property ladder.
The credit crunch and accusations of less than responsible lending has caused providers to take a look at own their lending criteria. As well as a cut back in UK mortgage products, those that offer 90% lending usually have high fees attached. Alliance & Leicester, Halifax and RBS/NatWest all have a higher lending charge for borrowing at 90% or more, claiming that it covers the increased risk associated with higher lending. The charges often amount to more than £3,000 on a typical UK mortgage.
By contrast, Barclays, Bradford & Bingley, Lloyds TSB, HSBC and Nationwide do not charge more in these circumstances.
It is best to get as large a deposit as possible when taking out a UK mortgage, to get a lower fee, and a better interest rate.
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UK Mortgages Facing Tough Times Ahead