Housing & mortgage round up: NewBuy concerns as mortgage lending rises, but so do interest rates

In another week packed full of housing news, we take a look at concerns over the NewBuy mortgage scheme and a rise in mortgage approvals.

It also seems that interest rates are on the rise as the crisis in the Eurozone continues to affect the UK mortgage market.

Concerns mount over NewBuy mortgage scheme

Home builders have expressed concern that mortgage lenders are setting interest rates too high on their NewBuy mortgage schemes and putting off would be buyers.

Last week Barratt Homes said they had sold only one house under the NewBuy scheme, now a further six house builders have revealed that they have sold just five homes under the scheme.

The NewBuy scheme is intended to stimulate demand in the housing market, with 95% mortgages being guaranteed by the builders and the state. However, the mortgage deals under the scheme are more expensive than traditional mortgages and it seems that buyers are choosing other, less costly, options.

The survey of house builders was carried out by CanCcord Genuity, who said: “Having maintained a uniformly upbeat assessment of the scheme in their public statements, it appears there is mounting frustration among the builders.”

“The impression was that high rates and tough credit scoring were deterring or preventing all but a tiny proportion of the scheme’s potential target market.”

At least one builder said that tighter credit checks, compared to previous schemes we an issue.

Responding to the survey a spokesperson for the Department for Communities and Local Government said the findings were “inaccurate” and said that they expect more completions over the coming months.

Over a third of home movers expect house prices to rise

The number of home movers who expect house prices to rise has risen to its highest level since autumn 2010.

In a survey of 40,000 people by Rightmove, 35% of those questioned expect house prices to be higher in 12 months time, whilst 20% of people expect house prices to be lower, again the lowest percentage since autumn 2010.

Of the people who said house prices would rise, the largest single reason given was improvements in the mortgage market, whilst some thought that low interest rates would help.

The rise in confidence in the housing market is perhaps surprising given other concerns about rising interest rates, mortgage availability and wider economic problems, including the double dip recession and high unemployment.

Miles Shipside, director at Rightmove, said: “Confidence plays an important role in motivating those who can afford to buy to actually go ahead.

“Many of them are hunting in the same better-heeled locations, which in turn builds greater momentum and price rise expectation in these more affluent areas.

“Conversely, lower levels of activity in less well-off areas spreads negative sentiment, fuelling falling price confidence.”

Lack of mortgage availability, the need for larger deposits and nervousness about interest rates were some of the reasons given by the people who thought house prices would fall over the next 12 months.

Cost of fix rate mortgages rises to highest level since 2009

The cost of fixed rate mortgages is on the rise.

The average cost of a two year fixed rate, currently one of the most popular mortgage deals, has risen from 3.44% in March to 3.65% in April, according the the financial researchers at Defaqto.

April was the seventh month in a row that two year fixed rate mortgage deals have risen; in September the average rate was just 2.92%.

Two year fixed rate mortgages have risen in popularity over the past few years and now account for around 30%, or £30 billion, of all lending, compared to 20% in 2007. Many mortgage experts put the increase in this type of deal down to borrowers wanting short term stability, without tying themselves into longer fixed rate deals, which might be expensive to get out of in the future.

The interest rates charged for longer term fixed rate mortgages have also risen. The average three year fixed rate rose by 0.14% to 4.04% whilst the average five year fix rose by 0.08% to 4.28%.

Mortgage lending rose in March

The Council of Mortgage Lenders (CML) has reported a surge in lending during March, as first time buyers rushed to complete deals before the end of the Stamp Duty holiday.

The Stamp Duty holiday had allowed first time buyers to avoid payment of the tax on purchases below £250,000, saving 1% of the purchase price. However, the scheme was bought to an end as it was though it provided little incentive for first time buyers.

The CML said that 51,200 new mortgages were approved in March, a rise of 44% on February and 31% higher than the same time last year. Loans approved for first time buyers rose by a massive 74%.

The CML has however warned that the spike is not part of a general trend and lending will fall back again.

Paul Smee, Director General of the CML, said: “We expected this significant increase in borrowing for March because of the stamp duty holiday.”

He continued: “However, if lending follows the same pattern as after previous stamp duty concessions, we will likely see a drop in activity in the next few months.”

The government, as well as the housing industry, will be hoping that recent initiatives such as NewBuy and the revamped Right to Buy scheme will help to kick start the housing market.

Eurozone crisis to push up outage rates in the UK

The Bank of England has warned that mortgage interest rates in the UK could rise as a result of the Eurozone crisis, causing long term financial hardship for many households.

The Bank believes that the Eurozone crisis will increase the financing costs of banks, which will be passed on to mortgage borrowers in the form of higher interest rates.

Some mortgage experts believe that we are already seeing the effects of the Eurozone crisis in the UK mortgage market with lenders increasing their Standard Variable Rates, fixed rate mortgages rising and lenders imposing strict mortgage lending criteria.

Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options, including Buy to Let mortgages,  call  Linda today on 0115 933 8433, alternatively enquire online or email linda.wood@investmentsense.co.uk

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