Tag Archives: business
Home buyers set to see sustained period of low borrowing in UK
Home buyers in the UK, including buy to let investors can look forward to a sustained period of low borrowing rates, according to housing market lenders, due to the lowest ever bank base rate. The decision by the Bank of England to reduce the interest rate to 0.25% and the possibility of it going even lower, brings to an end the longest period of no change in rates since the War/post-War years of 1937 to 1951. Bank rate was cut from 1% to 0.5% in March 2009, and remained there till it was cut again last week. The Council of Mortgage Lenders (CML) points out that mortgage rates have fallen significantly over that period. The average mortgage rate over that period has fallen from 3.8% to 2.9%. It also points out that the bank rate is not the only influence. Funding costs, levels of competition, targeted levels of profitability, and an assessment of current and future market conditions to price appropriately for risk are also relevant factors. So it also follows that a rate cut does not automatically feed through on a like for like basis to mortgage rates. Future pricing will depend on all the factors above and is a matter for individual lenders. Around 50% of borrowers are currently on fixed rates and will therefore see no immediate impact on their payments in any case. Of the remaining 4.9 million home owners with a variable rate mortgage, over 1.5 million have a tracker rate mortgage and these borrowers may automatically see a rate reduction depending on their mortgage contract but some will have a lower level below which rates cannot fall. For new borrowers, mortgage pricing is extremely competitive and set to remain so. However, it is worth noting that the Bank has also been urging borrowers to plan ahead for the prospect of higher rates in the future and the CML said consumers should not assume that just because rates are low now, they will necessarily stay that way for a prolonged period. Recently, fixed rates have been accounting for about 90% of new lending, and while this is partly because they have been priced attractively, it's also likely to reflect a consumer appetite for certainty about outgoings. CML director general Paul Smee believes that some hesitation on the part of consumers thinking about buying property is understandable against the backdrop of recent political uncertainty. However, mortgage lenders are well capitalised and resilient and open for business to lend, in line with consumer demand as and when confidence levels bounce back. ‘Since the last change in official rate in March 2009, the average mortgage rate has already fallen from 3.8% to 2.9%. This confirms that bank rate is not the only influence on mortgage pricing; we feel that the mortgage market is at present well capitalised, resilient and open for business. Housing market fundamentals are sound,’ he explained. ‘So, we see the cut as a wider reaction to the economic effects of… Continue reading
UK needs to build 300,000 homes a year to meet current housing shortfall
The UK Government must lift its home building target by 50% and build 300,000 new homes each year to tackle the current housing crisis, according to a report from the House of Lords Economic Affairs Committee. The report suggests that local authorities and housing associations must be freed to build substantial numbers of homes for rent and for sale and points out that the current targets will fail to meet the demand for new homes or moderate the rate of house price increases. It also says that current policy is restricting local authorities' access to funding to build more social housing and creating uncertainty in the already dysfunctional housing market by frequent changes to tax rules and subsidies for house purchases, reductions in social rents, and the extension of the Right to Buy. All of these changes reduce the supply of homes for those who need low cost rental accommodation and a narrow focus on home ownership neglects those who rent their home, the report adds. The Committee makes wide-ranging recommendations to address the housing crisis, including charging council tax on development that is not completed quickly and not relying solely on private developers to meet the target which the report describes as misguided. Indeed, it points out that the private sector house building market is ‘oligopolistic’ with the eight largest builders building 50% of new homes and their business model is to restrict the volume of house building to maximise their profit margin. To address this the Committee recommends that local authorities are granted the power to levy council tax on developments that are not completed within a set time period. It also suggests that the Government must take decisive steps to build on the very substantial holdings of surplus publicly owned land and that a senior Cabinet minister should be given overall responsibility for identifying and coordinating the release of public land for housing, with a particular focus on providing low cost homes while the National Infrastructure Commission should oversee this process. It also wants local authorities to be given the power to increase planning fees. Local authorities should be able to set and vary planning fees to help fund a more efficient planning system and the upper cap on these charges should be much higher than the current limit. ‘We are facing an acute housing crisis with home ownership, and increasingly renting, being simply unaffordable for a great many people. The only way to address this is to increase supply. The country needs to build 300,000 homes a year for the foreseeable future,’ said Lord Hollick, Chairman of the Committee. ‘The private sector alone cannot deliver that. It has neither the ability nor motivation to do so. We need local government and housing associations to get back into the business of building,’ he pointed out. ‘Local authorities are keen to meet this challenge but they do not have the funds or the ability to borrow to embark on a… Continue reading
Home lending in the UK increased in May, latest CML data shows
Home owners in the UK borrowed £9.4 billion for house purchase, up 15% month on month and 8% year on year in May, according to the latest data. They took out 53,800 loans, up 13% on April and 5% on May 2015, according to the Council of Mortgage Lenders which said that some equilibrium is coming back into the home lending market. A breakdown of the figures show that first time buyers borrowed £4.3 billion, up 10% on April and 23% on May last year. This equated to 27,500 loans, up 9% month on month and 16% year on year. Home movers borrowed £5.1 billion, up 19% on April but down 2% compared to a year ago. This represented 26,300 loans, up 18% month on month but down 5% on May 2015. The data also shows that remortgage activity totalled £5.2 billion, down 15% on April but up 30% compared to a year ago. This came to 30,900 loans, down 12% month on month but up 25% compared to a year ago. Landlords borrowed £2.6 billion, up 4% month on month but down 4% year on year. This came to 16,600 loans in total, up 3% compared to April but down 8% compared to May 2015. ‘There was a sense of the market regaining some equilibrium in May, following the stamp duty driven spike in March and the subsequent dip in April,’ said Paul Smee, director general of the CML. ‘For the second month running, first time buyers borrowed more than home movers, the first time in 20 years that this has been the case. Buy to let continues at lower levels as expected, after the change to stamp duty,’ he pointed out. However, he also pointed out that Brexit, and its likely effect on the market, is a question to which the answer will not immediately be forthcoming. ‘Lenders will continue to be open for business as usual, but lending volumes may be affected by uncertain consumer sentiment,’ he added. The CML report also shows that affordability metrics for first time buyers have remained relatively stable. The typical loan size increased to £131,000 from £130,000 in April, while the household income of borrowers also increasing slightly from £39,700 in April to £40,000 in May, which meant the income multiple went up from 3.46 to 3.51. Home movers showed a similar trend with the average amount borrowed increasing to £166,000 from £163,000 in April, and the average household income of a home mover also increasing to £53,300 from £52,500. This meant the income multiple went down from 3.26 to 3.25 month on month. Remortgage lending saw a month on month decrease in May but a year on year increase by both volume and value, reaching levels similar to those in the first three months of the year. Gross buy to let lending continues to be lower than usual as expected after the surge in activity to beat the stamp duty changes on second properties ahead… Continue reading
