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Is the Mortgage Market Getting Better?

03 October 2011

I hope I’m not tempting fate but it feels like the mortgage market has bottomed out and is slowly starting to recover. I doubt we will get back to the position we were in a few years ago until the mistakes that we made are forgotten. At present lenders lack money to lend and the industry regulator, the Financial Services Authority, is taking a tough stance on what sort of lending it thinks is sensible.

For lucky homeowners with plenty of equity the situation has never looked better, lenders are offering rates that we have never seen before. It is possible to take out a 5-year fixed rate below 3.5%, something I never dreamt would happen. However there are also a large number of people being hampered by the mortgage market and one of the worst hit groups is first time buyers. Lenders have been much more reticent to lend to borrowers without large deposits and most first time buyers tend to fit into this category. If first time buyers can’t get on the housing ladder it impacts all the way up, as it means that people trying to move to a large house, i.e. first time sellers, don’t have anyone to sell to so they are stuck.

Over the last 6 months we have seen more and more lenders offering mortgages to borrowers with smaller deposits, almost every large lender now offers mortgages to those with at least a 10% deposit and some even lend to borrowers with just a 5% deposit. Competition for these products has pushed the rates down so they are much more affordable than they were before. Another by-product of more lenders offering these rates is the fact that none of them wanted to do large volumes so they were very strict and picky with who they accepted so acceptance rates were very low, now more lenders are active in this market they can take a slightly more common sense approach to who they give mortgages to and the acceptance rates have risen. On one hand lenders don’t want to offer mortgages where borrowers put in a smaller deposit as these are more risky and they also have to put aside more capital which in turn restricts the amount of other lending they can do. One the other hand lenders realise than unless they do what they can to support first time buyers the overall market will grind to a halt and this will have a terrible impact on house prices. By helping first time buyers get on the ladder lenders keep the housing market moving smoothly. Another reason for them to offer mortgages with small deposits is that they can charge the borrowers a lot more, so they can be more profitable.

We are a long way from seeing anything resembling Northern Rocks' Together mortgage which allowed borrowers to borrow more than the value of the property but at least it now feels like we are moving in the right way and first time buyers without wealthy and generous parents are now able to get on the housing ladder.


Jonathan Cornell (in association with Colleys, Surveyors)

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