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