ROOF Blog

Gross mortgage lending in January fell to the lowest level in 10 years as buyers were deterred by the end of the stamp duty holiday, figures showed this week – but experts have warned that lending could decline further as banks lose government funding support. According to the Council of Mortgage Lenders (CML), gross mortgages totalled just £9.1bn in January, down 32 per cent from the £13.4bn in December. This is the lowest monthly total since February 2000, when gross lending was £7.9bn. While a seasonal fall is usual between December and January, the CML said the drop was ‘larger than average’ due to higher purchase activity in December, as borrowers rushed to take advantage of the stamp duty holiday on properties valued less than £175,000.

The Government’s stamp-duty holiday on properties sold for less than £175,000 has not helped nearly as many homeowners as first predicted.

Figures obtained by property website zoopla.co.uk show that in the first 12 months of the holiday until 1 September, buyers saved just £173m compared with the £600m predicted by the Government.

A combination of factors lies behind the disparity. First-time buyers – the most likely to benefit from the holiday – have found it hard to get mortgages due to tight lending criteria. Transaction levels have also been lower than normal across the whole market with a shortage of properties to buy.

Estate agents reported that five house hunters were registered with them for every property they had on their books last month.

But the high level of demand is failing to translate into increased sales, with estate agents selling an average of 7.7 properties each, down from 8.5 in September.

The number of buyers also dipped slightly to 287, down from 294 in September. But it remains a significant increase on the 196 house hunters for the same month last year, according to the National Association of Estate Agents (NAEA).

The heightened demand is a result of fewer properties on the market, with estate agents reporting that the average number of properties available for sale per branch dropped from 62 in September to 57 in October.

Melanie Bien, of mortgage brokers Savills Private Finance, said: ‘Family homes are in particularly short supply and prices are being sustained because of the demand for each property that comes onto the market.

‘Until more properties become available and finance is more readily accessible to those with small deposits, the number of transactions will remain woefully low.’

The housing market rebound showed no sign of slowing in October, according to the latest figures, with prices rising by 1.2 per cent.

Halifax said that the increase was the fourth consecutive rise by its measure.

House prices are now 7.1 per cent higher than they were six months ago and 2.9 per cent higher than in December last year, the lender said.

Prices in the three months to October were 2.9 per cent, or £4,667 higher than in the previous three months.

Halifax said that there were early signs that more people were beginning to put their homes on the market as conditions improved; a trend that economists have said could lead to a relapse in recent price rises.

Howard Archer, chief economist at Global Insight, said: ‘Personally, I’m sceptical that house prices can go on rising for much longer. That’s not to say that they will fall off a cliff – I just don’t think the economy is strong enough to sustain these increases.

‘A relapse in house prices will be even more likely if the recent firming trend leads to more properties coming on to the market, thereby moving the supply-demand balance away from vendors towards buyers.’

Borrowers have been warned of soaring mortgage fees after the Financial Services Authority (FSA) called for lenders to assess income and spending in greater detail before approving loans.

Lenders are already under fire for introducing application charges of up to £1,000, which you lose if you back out or the loan offer is withdrawn – a problem not uncommon in today’s mortgage market.

Brokers say that plans by the Financial Services Authority (FSA) to make all borrowers pass an ‘affordability test’ that scrutinises their spending habits mean that fees could go even higher.

Savills Private Finance broker Melanie Bien said: ‘Any step-up in regulation means more cost, and higher costs tend to be passed on to consumers.

‘Lenders are likely to favour higher charges over the alternative option of increasing interest rates as it is a less visible way of raising costs.

‘This will be unhelpful, especially for first-time buyers, for whom every penny counts.’