UK Mortgage Approvals Highest Since February 2008

This article by Katie Allen of theguardian on October 29th, 2013 tells us the argument about Help to Buy scheme risks may create another bubble according to figures.

The Bank of England mortgage lending figures are at their highest for more than five years. Photograph: Yui Mok/PA

 

Mortgages approved by British lenders jumped to their highest level for more than five years in September, fanning fears the housing market was already heating up even before the latest government support kicked in.

Banks, building societies and other lenders approved 66,735 mortgages in September, the biggest monthly total since February 2008, before the global financial crisis took hold.

The figures, from the Bank of England, were just ahead of City forecasts of 66,000 and compared with an upwardly revised 63,396 in August. Mortgage approvals are seen by economists as a good early indicator of where the housing market is headed.

They follow government data on Monday showing house prices rose in every English region in September and are likely to be seized on by those who argue that the government's Help to Buy scheme risks creating a new bubble.

"All the stimulus thrown at the housing market risks starting another dangerous boom-bust cycle," said Rob Wood, chief UK economist at Berenberg Bank.

"The key issue is not where prices are today, rather it is where they will be in a couple of years. Prices and activity are rising fast now. We expect house prices to rise 10% year on year next year … The measures that selectively boost the housing market, like the Help to Buy scheme, should be scrapped."

The plan to kickstart the property market and help homebuyers struggling to get on the property ladder gives a taxpayer-backed guarantee to lenders offering 95% mortgages that are open to first-time buyers and home movers on newbuild homes worth up to £600,000. Despite criticism from the International Monetary Fund and many economists, the scheme was expanded this month.

In an attempt to quell criticism of his scheme, the chancellor, George Osborne, recently asked the Bank of England to monitor its impact and report back in a year. Howard Archer, economist at IHS Global Insight, said the latest numbers underlined the need for policymakers to be ready to act "quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced".

Archer said it appeared a number of factors were supporting the property market even before the latest phase of Help to Buy was launched: improved consumer confidence, higher employment and extended low mortgage interest rates, the first stage of Help to Buy and the Funding for Lending scheme – a Bank of England initiative to increase the flow of cheap finance to credit-starved businesses.

"We are currently a long way off from an overall housing market bubble emerging. Nevertheless, there is a mounting danger that house prices could really take off over the coming months, especially if already significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme," Archer added.

Others argued the housing market was still well below its peak and there were few warning signs of a bubble forming.

Samuel Tombs, UK economist at the thinktank Capital Economics, emphasised that mortgage lending, at £1bn, was only "a touch" above the average of £0.7bn over the previous two years. Mortgage approvals were still close to 40% down on their typical pre-recession levels, he added.

"Given that interest rates on Help to Buy mortgage products look expensive and lending criteria are strict, we doubt the scheme will boost mortgage demand much. Note too that banks appear to have little appetite to substantially increase the size of their mortgage books," Tombs said.

"For now, then, there remains little evidence that a renewed boom in the housing market is developing."

The Bank data contained some evidence that businesses found it easier to get finance in September. After dropping sharply in August, lending to non-financial businesses rose by £720m, the biggest increase since January.

"While it is important not to read too much into one month's figures, the size of the September increase in business lending reported by the Bank of England provides a significant boost to hopes that banks are now becoming more prepared to lend to businesses, given the improved economic situation and outlook," said Archer.

The Bank's data showed, however, that within the overall rise, lending to small businesses fell in September.

The British Chambers of Commerce said small businesses needed more help to get funds.
"It's good to see overall business lending rise, as this has an impact on business confidence. Yet these new figures show that while large firms have little difficulty tapping debt markets, SMEs – and particular young, fast-growing firms – continue to struggle to access growth capital," said Adam Marshall, its director of policy and external affairs.

"Both policymakers and financial institutions need to do more to help fast-growing SMEs access finance."

Article Source: http://www.theguardian.com/business/2013/oct/29/mortgage-approvals-february-2008-help-to-buy

 

House Prices Soar by £7,000 in Past Four Weeks

This article by Sarah O'Grady of Express on October 21, 2013 reveals the figures that market burts back into life while house prices have soared in the a month.

The £6,923 jump in the past four weeks is confirmation that Britain is enjoying a housing boom.

The £1,750 weekly uplift puts the price of a typical three-bedroom semi at £252,418, according to ­analysts Rightmove.

The biggest leap was recorded in London where new sellers added an extra £50,484 to their average asking prices this month. Experts said the rise was being driven by renewed interest from buyers following the introduction of the Government’s Help To Buy mortgage scheme.

Fears of a housing bubble were also eased as the number of new sellers coming to market was up eight per cent – although shortages were ­driving up prices in some regions.

James Hall, director of estate agents Fishneedwater, said: “Wow, the property market is back, and then some. We’re seeing a huge amount of pent-up demand hit the market at the same time.

“People feel a lot more confident about the economy and, due to the introduction of Government schemes, are finally able to get mortgage finance.

“Even mortgage rates at higher loan-to-values are exceptional.

“People are piling back into property. Owners and sellers will be pinching themselves. 

Bidding wars are becoming an everyday occurrence in some areas of the UK. There’s just not enough property going round and this is sending prices ever higher and creating levels of interest for individual properties not seen for many years.”

 
Bidding wars are becoming more regular as there is not enough property to fuel demand [GETTY]

Government initiatives like the £80billion Funding For Lending Scheme and the £12billion Help To Buy plan have helped push mortgage lending to a five-year high, figures showed last week.

Buyers taking advantage of record low interest rates and easier borrowing criteria meant total home loans hit an estimated £49.3billion in the three months to September, the Council of Mortgage Lenders said.

That was a third higher than the same period last year and the greatest quarterly total since autumn 2008.

Average house prices are now higher than the previous peak seen in January 2008, according to the Office for National Statistics which also revealed first-time buyer house price inflation is just under five per cent.

Miles Shipside, Rightmove director and housing market analyst, said: “Some agents currently report that there is a buying frenzy in parts of the UK with available stock so low that their shelves are now bare.”

The Rightmove research to mid-October showed that across England and Wales asking prices rose by 2.8 per cent month-on-month, following two months of falls, to reach £252,418 on average.

Prices across the country are 3.8 per cent higher than they were a year ago.

Alexander Gosling, director of online estate agents Housesimple.co.uk, said: “The property market really is gathering a head of steam and not just in London.”

Article Source: http://www.express.co.uk/news/uk/438168/House-prices-soar-by-7-000-in-past-four-weeks

Mark Carney Reinforces Warning on Rising Interest Rates for Home Owners

This article by Larry Elliott and Philip Inman of theguardian on October 2nd, 2013 discusses the Bank of England chief Mark Carney says regarding the house building and prices increase will affect the recovery of the property market.

Mark Carney, the Bank of England governor, has delivered a warning to home owners about the risks of rising interest rates as Threadneedle Street made clear it was keeping a close eye on developments in the housing market.

Carney said that people should check to see if they could still afford their repayments on their home loans, when he said, "rates rise, as they will, when the recovery takes hold".

Speaking on ITV News Anglia, he reinforced the message from another senior bank official, Paul Fisher, saying both borrowers and lenders should be careful not to overstretch themselves.

Fisher, Threadneedle Street's executive director of markets, rejected the idea that a property bubble was emerging but stressed that the bank was alert to the risks of another boom-bust.

His comments came as latest construction figures revealed a strong increase in private house building, offering a counterpoint to mounting fears that the ground was being laid for a new housing crash.

Fisher said the market was clearly gathering momentum after years in the doldrums and prices had again started to hit the headlines.

"I must say that don't see any evidence of bubble behaviour as yet, with mortgage lending still subdued relative to what is likely to be normal levels of activity. The housing market is recovering from a number of years of very low transactions, with house prices having risen well below the inflation rate."

Recent house price surveys have shown that the cost of property is increasing by about 5% for the UK as a whole and by 10% in London.

The bank said this week that the number of home loans approved by lenders in August was the highest since February 2008.

Fisher said: "It is not surprising if we see an adjustment of relative prices when the market recovers, and of course London has special demand pressures which are not present elsewhere in the UK, especially for high-end housing.

"But we may well see a response in new housing supply in due course, limiting the effects of demand on house prices."

Fisher's comments on housing supply were boosted by construction figures also released on Wednesday which showed the strongest growth in private house building since 2003.
A CIPS/Markit survey showed that Britain's construction industry grew for the fifth successive month in September.

Private house building has grown strongly over the last year in response to the government's Help to Buy deposit guarantee for new homes.

The Bank of England's Funding for Lending scheme, which has cut mortgage rates, is also credited with increasing the supply of cheap credit to buy homes.

Tim Moore, senior economist at Markit, said: "Construction is no longer the weakest link in the UK economy. The third quarter of 2013 ended with output growth riding high amid greater spending on infrastructure projects and resurgent house-building activity. The reversal in fortunes has spanned commercial, residential and public-sector construction projects."

The Markit/CIPS UK construction purchasing managers' index (PMI) came in at 58.9 for September, down from a near six-year high of 59.1 during August. A figure above 50 indicates expansion.

Undaunted by warnings from within his own government of a potential asset bubble, David Cameron announced this week that the government had brought forward the second phase of its Help to Buy scheme for mortgages, from early 2014 to this month.

He said: "Let me assure you that the bank will not be complacent about allowing financial stability risks to build through an over-expansion of the housing market. Both borrowers and lenders need to be careful not to overstretch themselves.

"In line with the recent financial policy committee statement, we will be keeping a very close eye on developments, and the bank has a range of tools that can be used in mitigation of those risks."

Howard Archer, UK economist at IHS Global Insight, said the construction sector was exhibiting "marked sustainable improvement following extended, deep weakness".

Archer said: "Indeed, the construction sector highly likely saw even stronger expansion in the third quarter than in the second quarter when output grew 1.9% quarter-on-quarter.

"The construction PMI averaged 58.3 in the third, which was up substantially from 50.4 in the second quarter and was the best quarterly performance since the third quarter of 2007.

"This fuels belief that GDP growth in the third quarter could very well have accelerated to close to 1%."

However, output across the construction industry remains well below its peak and analysts estimate that 100,000- 150,000 construction workers are either working in other sectors or without jobs.

According to the Office for National Statistics the construction industry is operating 14% below its pre-crash level.

Article Source: http://www.theguardian.com/business/2013/oct/02/mark-carney-warning-interest-rates

Mortgage Lending Booms as Iinterest Rates Hit Record Low

This article by Hilary Osborne of The Guardian on September 10th, 2013 shows that gross mortgage lending reaches highest level since the 2007 crash fueled by government loan schemes and economic optimism.

Gross mortgage lending reached its highest level since 2007 in the second quarter of 2013, as the cost of borrowing fell to the lowest level on record, according to figures from the Bank of England.

Sharp increases in the number of first-time buyers and buy-to-let landlords entering the market fuelled a busy three months for the mortgage industry.

A total of £41.6bn worth of new loans were advanced to borrowers, a 23% increase on the first quarter and 13% higher than in the same period of the previous year.

The quarter-on-quarter leap in lending is the biggest since 2007, when the housing market boom was in its final throes.

Lending to first-time buyers saw a big increase, as banks and building societies became less reluctant to offer mortgages to borrowers with small deposits. The Bank's figures show that the share of the market taken by mortgages at a high loan to value, which it defines as above 90% of the property's price, increased from 2.1% in the first quarter to 2.5%.

The value of mortgages advanced to new entrants in the property market was up by 31% year-on-year, at £8bn. Over the same period new lending for buy-to-let increased from £3.9bn to £5bn.

The mortgage market has been fuelled by a combination of factors, including positive economic data and government stimulus in the form of the Funding for Lending and Help to Buy schemes.

The impact of Funding for Lending, which offers banks and building societies access to cheap funds to encourage them to offer loans to businesses and households, is underlined by the Bank's data for mortgage interest rates.

It shows that the overall average interest rate on gross advances fell to 3.47% in the second quarter – the lowest interest rate on record.

Some of the low rates have encouraged remortgage activity, and net mortgage lending which takes into account repayments and redemptions showed a smaller annual increase than the headline figure, rising by 8.6% to a total of £5.1bn.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: "Funding for Lending and Help to Buy are resulting in cheaper mortgage rates, which is encouraging borrowers to finally take the plunge.

"Growing confidence in the housing market as prices rise, particularly in London and the south-east, is also stoking the market."

Earlier, the Royal Institution of Chartered Surveyors became the latest organisation to warn that the Help to Buy scheme could push prices to unaffordable levels.

Rics said house prices in the UK were rising at the fastest pace in almost seven years, echoing similar data from lenders Halifax and Nationwide.

Article Source: http://www.theguardian.com/money/2013/sep/10/mortgage-interest-rate-record