March 12, 2008
Industry Body Says Mortgage Loan Values Dropping
The UK’s leading mortgage body has revealed the number of mortgage loans taken out this month dropped by 19% across the whole of the UK.
According to the Council of Mortgage Lenders, the number of loans for house purchase continued to decline in January totaling 50,300, a 19% fall from 62,000 in December, and 34% lower than 75,800 in January 2007.
The value declined to £7.8 billion, a 17% fall from £9.4 billion in December and 31% lower than £11.2 billion in January 2007.
But there was an increase in remortgaging activity with 85,000 remortgages, up by 43% from 59,000 in December.
The UK mortgage body revealed first-time buyers typically took out loans for 88% of the property’s value in January, down from 90% in December and January 2007. Home movers, on average, borrowed 70% of the property’s value, down from 73% in December and 72% in January 2007.
Also, according to mform.co.uk, just nine lenders are still offering 100% mortgages direct to the public as mortgage companies turn their backs on potentially high risk, bad credit customers.
The website says the number of lenders in the 100% loans market has dropped from 22 six months ago, and the number of products on offer has fallen from 162 to just 39 now. In Scotland only seven lenders will sell 100% mortgages.
Its research found that the lowest rates on offer in October were around 5.99% – now they are up to 6.14%, despite the Bank of England cutting the base rate twice in the last six months. Also, typical mortgage fees have risen from £4,954 to £5,134.
Michael Coogan, director general of the CML, says: “The wholesale funding markets remain largely closed and mortgage funding still remains constrained. This is now having a discernible impact on lending criteria and the ability of first-time buyers to get into the housing market.”
Francis Ghiloni, marketing and business development director at mform.co.uk, says: “Lenders have given up on 125% mortgages but there is still life in the 100% mortgage market albeit with higher rates and fees as companies price for risk.
“Many borrowers – and particularly first-time buyers – can benefit from 100% mortgages. If borrowers can comfortably afford the repayments 100% loans remain a sensible idea.
“However with house prices falling there is a real risk of negative equity for anyone taking a 100% mortgage.”
Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors, says: “This data provides clear evidence that the credit crunch is now having a meaningful impact on the availability of finance for home purchases.
“Not only are the volume of mortgages falling sharply but loan to value ratios are also being reduced. This is consistent with much other anecdotal evidence.
“First-time buyers are very much affected in this more hostile environment. The scaling back of lending activity is likely to limit the extent of any benefit. In the near term, the housing market is likely to continue to soften.”
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