The Council of Mortgage Lenders (CML) has today revealed that new home loans increased by 7% in May to £11.3 billion. While the 7% increase on the April figure is obviously a move in the right direction it is still only 10% higher than May 2009 which perfectly illustrates the still subdued level of mortgage liquidity and mortgage agreements in the UK. So what next?
There is strong talk in the city of a mortgage cap being introduced by the Bank of England with a suggestion that a minimum deposit figure could be as high as 25%. While there is no doubt that introducing a cushion between the value of any property and the funds forwarded from mortgage providers would reduce the chances of a property crash in the future it could also kill the property sector stone dead.
It is believed that the UK government is on the verge of passing significant power to the Bank of England in relation to the UK mortgage market which could see potentially four out of every 10 mortgage applications rejected. Central to this issue is a proposed mortgage cap which could see the introduction of a requirement to put down a minimum 25% deposit on any house purchase.
Yesterday's announcement that housebuilder Bovis Homes has agreed a joint venture with Barclays which will see home buyers guaranteed a mortgage of up to 90% has set tongues wagging in the housebuilding arena. So is this the way ahead for the UK housebuilding sector?
In a sign of how difficult the UK property market is at the moment it has been revealed that Bovis Homes has tied up with Barclays and its Woolwich subsidiary to offer guaranteed mortgages to its customers. While the 90% mortgages will be dispatched by Barclays it is Bovis Homes which will take on the financial risk after agreeing to ring fence some of the company's profit from house sales to cover any potential repossession costs and mortgage losses in the future.
In a sign of the times the average fixed rate home loan for up to 75% of a property's value has fallen to 3.8% in May which compares favourably with the average of 4.47% in September last year. There has also seen a drop in almost every different type of mortgage instrument which is not only a reflection of the ultralow UK base rate but also issues with the UK property market.
UK mortgage lending increased by £0.5 billion in April which is an improvement on the £0.2 billion increase in March but well below the £1.6 billion average over the last six months. The number of mortgages approved increased to just under 50,000 against just over 49,000 in March, although again this is well below the 53,600 six monthly average. The number of people looking to remortgage their homes has stayed fairly stable with just over 26,000 remortgages agreed in April.
Lloyds bank has today become the second UK mortgage company to increase its standard variable mortgage rate for new customers. This rate will run in tandem with the current guaranteed standard variable rate which the bank promised would never rise more than 2% above the Bank of England base rate. However, the new rate will be introduced from 1 June and will be priced at 3.99% which is obviously well above the 2.5% current standard variable rate customers are being charged.
As problems in the European money markets continue to grow there is concern that at some point this will impact upon the UK mortgage market and the already fragile funding situation. We have already seen money market rates rise over the last few days and they are more than likely to increase further in the days to come. So what will happen if the UK mortgage market is impacted yet again?
It was revealed that gross mortgage lending between March and April fell by a significant 12% amid signs that the funding gap in the UK mortgage market is worsening. Since the credit crunch we have seen a massive increase in the cost of credit in the wholesale money markets although a variety of former government schemes have taken some of the pressure away from funding issues. However, a number of these schemes have now ended and concern is growing as to how the current funding deficit will be breached.
