Mortgage & Housing round up: House prices rise amid fears of another housing ‘bubble’


Housing & mortgage round up_istockphotoJust as the market is recovering from the last housing ‘bubble’ being burst another is being predicted.

We’ve pulled together this and the rest of the week’s housing and mortgage news, including a rise in mortgage lending, plus news that borrowers in the north of the UK are more likely to be in negative equity or have arrears and a look at the rising cost of renting.

Mortgage arrears and negative equity worse in the North

New research has shown that mortgage borrowers in the north of the country are more likely to be in arrears, or suffer from negative equity, than homeowners in the south.

Negative equity occurs when the amount of money outstanding on a borrower’s mortgage exceeds the value of the property. Borrowers with negative equity often find it hard to move house, which can have a knock on effect to the rest of the housing market causing a general slowdown.

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The research from Standard & Poor’s, found that the proportion of borrowers in the south with negative equity, fell to just 1.5% during the first three months of 2013. However, the picture is very different in the north, where the percentage of homes in negative equity actually rose to 8.7%.

Borrowers in the north are also more likely to be behind with their mortgage payments, with 4.4% in arrears, compared to 3.5% in the south.

Mark Boyce, from Standard & Poor’s, said: “House prices have begun to grow modestly in the north and the proportion of borrowers in negative equity could fall, but the pace of growth in London is so strong that it is outpacing the rest of the UK.”

Boyce continued: “In the case of negative equity, obviously the fact that borrowers are in negative equity doesn’t mean they are going to default, but there is a link between defaulting and the amount of equity a borrower has. If interest rates were to rise and a borrower has to sell their home, they may have to default.” (Source: The Telegraph)

Mortgage lending shoots up

Figures from the Council for Mortgage Lenders (CML) have shown that mortgage lending shot up by 21% in May. The CML estimates that

last month gross mortgage lending stood at £14.7 billion, up from £12.2 billion in April.

The lending figure for May is the highest level seen since October 2008 and is up by 17% on May 2012.

Commenting on the figures, Bob Pannell, Chief Economist at the CML, said: “The imminent change of guard at the Bank of England takes place against the backdrop of a modestly improving UK economy, albeit one that appears to rest upon a pick-up in consumer spending and a recovering housing market.”

Pannell continued: “Funding conditions, helped by the funding for lending scheme, continue to look favourable and are supporting more competitive mortgage pricing and availability and a gradual resumption of lenders’ risk appetite.”

“While the direction of travel is clear and fits well with the more positive housing surveys from RICS and others, our forward estimate does imply somewhat stronger house purchase activity than we had been expecting. This may reflect a degree of pent up sales following the extended spell of poor weather earlier this year”.

Mortgage experts believe the increase in gross lending is partly down to the support given to the housing market by two government initiatives; the Funding for Lending and Help to Buy schemes.

A new housing ‘bubble’?

The recent rise in mortgage lending, coupled with the government’s Help to Buy initiative, has led to a warning that a new housing ‘bubble’ is being created.

The warning comes from the Building Societies Association (BSA) which is particularly concerned about the Help to Buy scheme, warning that the government needs to have a clear exist strategy, if it is to avoid “a seriously distorted housing market and the very real danger of a new housing bubble.”

Although the scheme is due to come to an end in 2017, there are concerns from some that it may become a permanent fixture.

Paul Broadhead, the BSA’s Head of Mortgage Policy, said: “Care is needed to prevent the actions taken today inadvertently causing a distorted housing market in three years time – a market where state intervention has artificially hiked prices.”

Cost of renting rises faster than inflation

First time buyers, who tend to live in rented accommodation, were dealt another blow this week with news that average rents are rising faster than inflation.

Over the past 12 months the average cost of renting a property has risen by 3.5%, 0.8% higher than inflation, which currently stands at 2.7%. Renters in London are the hardest hit with average rents rising by 7.2% over the past 12 months.

The average rent paid in England and Wales is now £737 per month and is predicted to rise further as demand for high quality rented accommodation continues to outstrip supply.

Despite the rise in average rents the financial position of tenants seems to be improving, with the percentage of tenants in arrears falling.

Do you need mortgage advice?

Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options or you are affected by any of the stories in this week’s housing round up please call Linda today on 0115 933 8433, alternatively enquire online or email

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