Housing round up: Signs of a recovery and the demise of Interest Only mortgages


Housing & mortgage round upA busy week for the housing market!

We have seen figures pointing to a possible recovery in the housing market, whilst three lenders change their criteria for Interest Only mortgages and buyers of the most expensive properties are hit with a rise in Stamp Duty.

Nationwide say house prices rose in February

The Nationwide’s house price index has shown that property prices rose by 0.6% in February taking the average property value to £162,712.

The survey also showed that year on year prices have risen by 0.9%.

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Property sales rise

Figures released by HMRC have shown that property sales rose in February.

65,000 property sales were completed last month, up 7% on January and 18% on the same time last year.

In January the number of houses sold was 22% higher than the previous year.

The HMRC figures echo other data, including the latest survey from the Nationwide, which indicate that the housing market might be showing some small signs of recovery.

“Spring bounce” in house prices

The Right Move house price index has shown the biggest “spring bounce” in eight years.

According to Right Move the average asking price in the UK has risen by 4.9% over the first three months of 2012 to £236,939.

Miles Shipside, Director of Rightmove, said: “The traditionally buoyant spring market has combined with a shortage of supply and brisk turnover of property.”

“The result is another new record for average asking prices in the capital this month, representing an increase of nearly £600 a week over the last year and underlining London’s continuing property market strength.”

Property experts point out however, that a rise in asking prices does not necessarily translate into completed sales or indeed rises in the actual value of properties. Indeed most house price surveys showed a slight fall in property prices over the last 12 months, although with more stability towards the end of that period.

More lenders shy away from Interest Only mortgages

The trend away from Interest Only mortgages continued this week with Nationwide, Coventry Building Society and Natwest Intermediary Services making changes.

Nationwide, the UK’s largest building society, has announced that it will only allow Interest Only mortgages when a new borrower has a 50% deposit.

Nationwide previously offered Interest Only mortgages up to 75% loan to value and has made the change because it needed to “manage application levels” following similar moves by other lenders which caused a surge in applications to the building society.

The changes apply to the Derbyshire, Cheshire and Dunfermline building societies, all of whom fall under the Nationwide’s umbrella.

However existing customers will not be effected by the move unless they apply to borrow more money.

The Coventry Building Society has also restricted the loan to value for Interest Only mortgages to 50%.

Natwest Intermediary Services has gone further and removed all Interest Only mortgage products saying that it will reintroduce the option next week on selected products.

The three lenders join Santander, Halifax, Leeds Building Society and Yorkshire Bank who have already announced similar changes.

However, other lenders including Barclays, HSBC, Virgin Money, Yorkshire Building Society and the Bank of Ireland have all said they have no plans to change their Interest Only criteria.

Interest Only mortgages were popular in the 1980’s and 1990’s and often backed by investment products such as Endowments or ISAs (Individual Savings Accounts), which were designed to repay the mortgage at the end of the term. However since the last housing boom both the lenders and the FSA (Financial Services Authority) have become concerned by the number of borrowers who have no way of repaying their interest only mortgage.

The changes by the lenders are clearly an attempt to avoid a repeat of the problem created during the last housing boom but mortgage experts predict that the changes will cause problems for borrowers with Interest Only mortgages when they try and remortgage, raise further capital or indeed move house.

Stamp Duty increases

The Chancellor George Osborne announced measures in the Budget to stop buyers of the most expensive property avoid Stamp Duty.

People buying residential property for over £2 million via a company will now be hit by a Stamp Duty bill of 15%.

Stamp Duty on purchases of residential property made personally and in excess of £2 million has been increased to 7%.

The changes took place from midnight on 21st March and saw frantic activity by some buyers to exchange contracts before the deadline; the upmarket estate agent Savills reported £50 million of deals being bought forward to avoid the increase.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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