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Six in ten mortgages are now for house purchase

Wednesday, September 08, 2010

Source: Catherine Deshayes

The proportion of mortgages being taken out for purchases, as opposed to remortgages, is at its highest level for years, although the actual number of mortgages being lent is down...

The latest mortgage index from John Charcol reveals that six out of ten mortgages are for purchases.

Drew Wotherspoon, director of marketing at Charcol.co.uk, said: "For the first time in what we believe is decades, the proportion of mortgages for purchases broke the 60% barrier in July, revealing a certain confidence in the future of the market." 

He went on to claim: "There is much talk of a double dip and a large correction in the housing market still to come, but these figures would certainly go some way towards questioning this theory. 

"The rule book may well have been ripped up when the crunch began, but the old adage of supply and demand still holds true. While we have limited new stock, demand will always outstrip supply in the UK. 

"The last few years have taught us to expect anything, but a further large drop in prices looks very unlikely, unless the FSA's proposed rules on affordability are implemented as currently drafted."

The independent mortgage advisers expect remortgaging to remain in the doldrums. Just two years ago it accounted for 75% of the market, but it is now just 40%. 

Wotherspoon said: "With tightening of lender criteria and many people reverting to reasonably attractive rates, there is little surprise in this, but borrowers should definitely keep their eyes on the ball. Logic dictates that a move in bank rate will spur some people into action, but many shouldn't wait for that. Increasing numbers of borrowers would be better off if they moved.

"But even with the improvement in pricing of fixed rates recently, borrowers are showing little signs that they believe it is time to take long-term security. 

"Despite the best attempts of some market commentators to scare borrowers by suggesting we could have 8% interest rates soon, variable rates are still, in our opinion, the product of choice."

He added: "For the record, we would be surprised if bank rate was anywhere near that level by the end of 2015."

The index also showed that the number of first-time buyers increased by 80% in one month, although Charcol is wary of drawing too many conclusions from that.

"This is the highest level since February and perhaps suggests that first-timers are willing to dip their toe into the market again after sensibly putting any plans on hold pending the outcome of the election and subsequent emergency budget," said Wotherspoon. 

"However, one month does not make a trend, but it will be interesting to see over the coming months if the trend does continue."

The John Charcol Mortgage Index is published monthly, tracking statistics based on mortgage business written by the company. As such, its figures are more current than those reported by the Council of Mortgage Lenders and the Bank of England which are based on completions, which typically take place two to three months after the mortgage application is submitted.

The three statistics tracked each month, based on the number of cases submitted rather than the mortgage amount, are the percentage split between fixed rates, capped rates and tracker/discount rates; between purchases, remortgages and product transfers; and of first-time buyers compared to all purchasers.

While Charcol says the proportion of mortgages taken out for house purchase has risen, the actual number has fallen. Mortgages approved for house purchases fell in July to 33,698 - down by 877 from June, according to the British Bankers Association.

This was the second monthly fall in a row, and compares with the high of 45,415 home loan approvals last December.

Gross mortgage lending by the major banks was slightly below the average of the last six months, at £8.4bn in July.

People are looking to repay their mortgage while interest rates are low. Net mortgage lending, which strips out repayments and redemptions, increased by just £1.95bn. This was the second-lowest rise since February 2001.

"Gross mortgage lending remains stable, although demand for mortgages continues to be subdued. The greater availability of properties for sale and slowing house price growth have not yet fed through to increased house purchase approvals," said BBA statistics director David Dooks.

Remortgaging rose slightly in July, from a low base, to 22,790.

Source: www.estateagenttoday.co.uk

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