The property rush isn’t over: mortgage lending to increase over rest of year

8th August 2014

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The introduction of stricter lending rules and government concern about the mortgage market are not expected to dampen enthusiasm for house buying in the rest of the year, as borrowing is expected to increase.

The Council of Mortgage Lenders has estimated mortgage lending will increase 18% to £208 million in the second half of the year despite a pessimistic outlook from the general public about the state of lending.

The concern about lending among the public has grown since the introduction of the mortgage market review (MMR) in April that saw the regulator bring in tougher affordability rules and a requirement for lenders to dig deeper into borrowers’ finances and ensure they can afford to repay their loans based on higher interest payments.

This was followed by Bank of England’s clampdown on high loan-to-income lending. Just 15% of banks and building society lending can be on loans that are 4.5 times a mortgage applicant’s salary.

However, Springtide Capital managing director Henry Knight, said while the MMR meant a slowdown in lending in the second quarter of the year it was not a signal of a general slowing in the market.

‘As we predicted before the MMR, the bottleneck created by the new rules saw a slow-down in lender processing time which in turn negatively impacted last quarter’s gross mortgage approval figures. However, behind the scenes, the actual number of mortgage deals being done has remained consistently strong, on both a micro and macro level.’

Knight said he saw a ‘very positive picture for the mortgage market’ despite tougher lending criteria.

‘Although the new lending restrictions coming in will curb borrowing for certain individuals, they will not inhibit mortgage lending as a whole. Come September, once the seasonal lull of summer holidays is over, we believe the final push towards the year end will commence in full,’ he said.

The lull in the second quarter and over the summer could be good for consumers hoping to take out a mortgage as it could encourage more competitive pricing among lenders, said Knight.

‘We are also aware that many lenders have reported lower figures at the end of the second quarter than they had initially predicted and that this in turn could see some increasingly competitive pricing for the remainder of the year as a result of lenders wanting to catch up and fulfil their production targets.’

The slowdown in lending may have translated into a slowing of house prices but the cost of property has continued to tick up over the past months.

The latest figures from the Halifax house price index show the cost of the average home rose 3.6% in May to July to £186,322, and prices were up 1.4% – or £2,500 – in July alone.

In the past year house prices have increased 10.2%, adding £17,000 to the average property as demand continues to outstrip supply.

 

 

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