Reports that mortgage lenders have continued to slash mortgage interest rates, have so far been met with the view that the level of mortgage approvals has not yet reached the level that lenders would expect to follow such monumental reductions. But figures produced by the Bank of England this week suggest that in April, preceding the outcome of the general election, approvals reached the highest month on month increase seen since 2009.
During April, the BOE confirmed that 68,706 loans were signed off by mortgage lenders for the purchase of a property. This signified the highest monthly figures recorded during the past 14 months, and represented a 9.9% increase on the figures recorded for March.
Much has been made of the fact that mortgage lenders are reducing mortgage rates to historic levels, and the expectation across the industry is that this will continue to happen for the remainder of 2015. It was confirmed last week that the margins that mortgage lenders trade and purchase interest rates on the open market, known as swap rates, and the final interest rate that lenders pass onto customers have tightened in recent months.
This has provided evidence that lenders appear to be committed to taking a hit on interest income, in order to continue meeting lending targets for the year. A clear example came in May, when Co-Operative Bank introduced the lowest two year fixed rate ever seen in the UK, at 1.09%. While interest rates are lower than ever, the deposit size to secure most of the best options in the market are greater than those that the average first time buyer or home mover could expect to produce.
Economists have been casting their eyes over the data, noting that forecasts for house price growth for the year would need to be adjusted. Howard Archer, an economist for IHS Global Insight, stated that the rise in approvals “reinforces our belief that housing market activity is now on the up.”
In relation to his own admission that he had recently raised his prediction for growth from 5% to 6% for the year, Archer said that, “There looks to be a very real possibility that it will have to be raised further. This is partly due to the increased upward impact on prices coming from a lack of properties on the market. We also suspect that housing market activity will continue to improve following the decisive general election result.”
Mark McBurney, a mortgage broker for Contractor Mortgages Made Easy, said: “Applications for lending in the contractor sector have not stalled since March, and have in fact reached the highest levels seen since lenders began lending to contractors. While there was some concern that the election was holding back many borrowers from committing to move home or refinance an existing mortgage, the figures from the Bank of England confirmed that this was not the case.”
McBurney added: “As we now enter the busy summer period, we would expect that the level of approvals will continue to rise, until the end of the year.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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