Housing & mortgage round up: Stagnant house prices, but encouraging mortgage figures


Housing & mortgage round up: Stagnant house pricesTwo new house price surveys, out this week, have confirmed what most people already knew, that house prices seem to be going nowhere, up or down, in a hurry.

However, these is some encouraging news when it comes to mortgage approvals, even if those borrowers who want the flexibility of an interest-only mortgage now have even less choice.

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House prices fall over the past year

The latest figures from the Nationwide Building Society show that house prices were unchanged in November, but down 1.2% over the past 12 months.

The UK’s largest building society says that the average home is now worth £163,853, about the same as at the end of the last housing boom.

Despite the small fall in prices over the past year, the Nationwide’s Robert Gardener believes that the housing market is in fact stable, saying: “UK house prices were unchanged over the month in November, after taking account of normal seasonal factors.”

“Moreover, annual price growth has remained in a narrow band between +1.5% and -1.5% on all but two occasions over the past two years.”

Housing experts believe that there are a number of key reasons, including low interest rates and falling unemployment, which have kept the market relatively stable.

Robert Gardener again: “The UK labour market has performed much better than expected since the onset of the financial crisis, and this in turn has provided significant support to the housing market.”

“The resilience of employment together with the ultra low level of interest rates has been instrumental in preventing a glut of unsold homes from building up on the market and exerting sustained downward pressure on house prices.”

Then again, house prices rise over the past year

Just to confuse the picture, another house price survey, this time by the Land Registry, has shown that house prices actually rose over the past 12 months.

The Land Registry data, which takes into account all house sales in England and Wales, shows that house prices in fact rose by 1.1% over the past 12 months, despite a modest fall of 0.3% in October.

The Land Registry put the average house price at £161,605, in the middle of the Nationwide and Halifax’s figures.

The national figures mask local trends, which saw house prices in Wales rise by the largest amount for the second month running. The North East showed the largest fall in October, dropping by 4.2%; the same region also had the largest annual fall of 5.8%.

The range of sale prices also makes interesting reading, with the cheapest property being sold in October going for just £8,000, whilst the most expensive went for an eye watering £25.5 million.

As the year draws to a close it is clear that house prices are still stagnating, with none of the major house prices surveys reporting significant rises or falls. Whilst low interest rates, falling unemployment and a gradually improving economic outlook have probably helped prices remain relatively stable, the lack of mortgage finance for many would-be borrowers, particularly first time buyers, has probably held the market back.

Two more mortgage lenders pull interest-only mortgage deals

Both RBS (Royal Bank of Scotland) and the Coventry Building Society have pulled out of the interest-only mortgage market this week.

As the name suggests, interest-only mortgages, means that the borrower’s monthly repayment is solely made up of interest, with no capital being repaid. Traditionally borrowers have used an investment vehicle, such as an endowment or ISA (Individual Savings Account), to build up capital which was then used to repay the debt.

However, in the last housing boom, as many as one in three borrowers used interest-only mortgages as a way of being able to buy larger properties than they could otherwise afford. Many of these borrowers did not put in place a suitable repayment vehicle. This has left thousands, perhaps millions, of borrowers with no way of repaying their debt.

The FSA has encouraged lenders to curb the number of interest-only mortgages they offer and from 2014 will require lenders to check that borrowers have a suitable means of repayment in place. This week’s move by RBS and the Coventry Building Society brings them into line with other mortgage lenders who changed their policy earlier in the year.

Moray McDonald, Head of Home Lending at RBS said: “We don’t rule out offering residential interest-only mortgages to niche customer groups in the future but we would do that using specialist advisers rather than our broad base of branch and telephony advisers.”

Colin Franklin, Sales and Marketing Director at the Coventry Building Society, said: “Residential interest-only mortgages have declined to less than 2% of all residential mortgage applications. We have therefore decided the time is right to leave this market.”

Interestingly the Coventry Building Society will continue to offer buy to let mortgages on an interest-only basis and existing residential homeowners, with an interest-only mortgage, will be able to port it if they decide to move house.

Mortgage experts believe that the lack of interest-only mortgage options for mainstream borrowers is rapidly making it a niche option, available only to those borrowers with high deposits or who have large annual incomes.

Mortgage approvals hit a 10 month high

New figures from the Bank of England have shown that mortgage lending is at a 10 month high, although personal borrowing has fallen.

According to the Bank, mortgage approvals rose to 52,982 in October, up by 2,500 on September and above expectations.

At the same time the British Bankers Association (BBA) also reported a rise in mortgage approvals.

The rise is being attributed by many experts to the Funding for Lending Scheme, which has reduced interest rates for many borrowers. Although it has had little impact on the availability of mortgage finance for those people who have previously struggled to borrow.

In a sign that many households are still reigning in their spending, the Bank also revealed that unsecured borrowing has fallen by £463 million, the largest drop since December last year.

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 linda.wood@investmentsense.co.uk

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

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