Tag Archives: lending
Maligned banking practice could help rebalance UK mortgage market, study suggests
Securitisation, where investors buy pools of debt from banks as secured assets, has enabled mortgage lenders in the UK to offer an increased number of lower risk, long term fixed rate mortgages, it is claimed. Securitisation was originally intended to free up funding for banks, allowing them to sell packages of mortgage loans and lend out the proceeds to more customers. Those loans could then be sold on, and the cycle could start again. The process was also intended to reduce risks for banks by spreading the ownership of mortgages and other loans among other investors but it came under scrutiny during the global economic downturn and used less frequently as a result. However, a new study of long term market trends by Dr Alla Koblyakova and Professor Michael White, of Nottingham Trent University’s Real Estate Economics and Investment Research Group, has found that 78% of mortgages sold as securities over a nine year period were held in longer term fixed rate contracts. ‘This is an important finding as it shows that securitisation not only increases liquidity in the market but has the potential to shift consumer mortgage choices toward long-term fixed rate mortgage debt,’ said Koblyakova. ‘In a market like the United Kingdom’s, where around 80% of residential mortgage debt is held in higher risk variable rate or short term fixed rate contracts, this is a very welcome finding,’ he claimed. ‘A high level of variable debt is seen as a source of economic instability. Policymakers may wish, therefore, to consider the potentially beneficial role that securitisation can play in helping balance the UK mortgage market,’ he added. According to the study variable rate and short term fixed rate mortgages are more risky for borrowers as they leave them more vulnerable to financial shocks, such as interest rate increases. By contrast, longer term fixed rate deals protect borrowers from such increases, but leave lenders more exposed to these risks. Koblyakova believes lenders may be more inclined to offer longer term fixed rate mortgages to borrowers when these mortgages are sold on as securities because this reduces the lenders’ exposure to risk. The study also found that variable rate mortgages were more profitable for lenders than long term fixed rate mortgages by as much as 1.6%. For every 1% of profit a mortgage lender makes from a variable rate mortgage, the market share of variable rate mortgages increases by 18%. This is despite the data also suggesting that consumers prefer to take out longer term fixed rate products. ‘According to this data, larger profit margins for variable rate mortgage products positively influences demand. These findings are very important, and should stand as a call for action for policymakers, as they show that UK households may be faced with greater payment shocks because of the strategies of lenders,’ Koblyakova concluded. White pointed out that the regulation… Continue reading
Call for UK housing policy to be revised as number of first time buyers remain flat
The number of first time buyers in the UK has remained flat despite mortgages becoming more affordable than ever, new research has found. Record mortgage affordability is keeping the housing market afloat, but current housing policy needs to be revised to meet home ownership targets according to a new report by the Intermediary Mortgage Lenders Association (IMLA). Overall, it forecasts a continuing recovery in mortgage lending during 2016 and 2017, with a particular pickup in lending for house purchases by owner occupiers from an estimated £142 billion in 2015 to £155 billion in 2016 and £169 billion in 2017. However, reviewing 2015 activity, the report finds that even though mortgage affordability has hit its highest level ever, with buyers spending a record low 8.6% of their income on interest by the third quarter of 2015 and even first time buyers spending only 9.7% by November. It adds that first time buyer numbers have fallen marginally year on year, suggesting the government may need to revisit housing policy to successfully increase owner occupation levels. IMLA’s research shows that as a result of this increased affordability, first time buyer mortgage repayments are lower than average rents in every region of Britain, although this is not yet being translated into the desired increase in home ownership with factors including deposit affordability issues and tighter lending criteria also having an effect. The rise in affordability over the past year has been supported by cheap mortgage deals, alongside rising incomes. Mortgage rates are at record lows. February 2015 saw the average two year fixed rate at 75% LTV fall below 2% for the first time and by October the average two year fixed rate at 90% LTV slipped below 3% for the first time. In a trend particularly benefitting first time buyers, the last year has seen high LTV loans become substantially more affordable, with those borrowers opting for higher LTV options facing a smaller marginal cost for borrowing between 75% to 90% and between 75% to 95%. IMLA’s analysis finds the implied marginal cost of borrowing between 75% and 90% LTV, which was as high as 21.3% in the middle of 2010, had fallen to 12.9% by the end of 2014 and was only 7.8% by December 2015. However, improving affordability of higher LTV loans in 2015 did not spark a rise in aggregate high LTV lending or the number of first time buyers, which fell back slightly in the year to November 2015 compared to the same period of 2014. Deposit affordability issues and tighter lending criteria mean that not all buyers can access the deals available, even though high LTV loan repayments are now more affordable than ever, the report points out. The IMLA is concerned that the government’s decision to terminate the Help to Buy mortgage guarantee scheme at the end of the year could make it harder for first time buyers, as it may reverse the recent improvements in high LTV loan pricing. Continue reading
New home sales and lending in Australia ended 2015 strongly
Seasonally adjusted new home sales in Australia finished last year strongly, recording a 6% increase in December, according to the latest data from the Housing Industry Association. The growth has bee driven by both the detached house and multi-unit segments of the market. Data shows detached house sales increased by 2.2% while multi-unit sales were up by 21.1%. HIA chief economist Harley Dale said the current healthy national construction volumes are expected to continue throughout the first half of 2016 but there are likely to be very large differences in new housing conditions across States. ‘The updates we receive for leading indicators in coming months will be closely watched to determine the magnitude of any risk that the second half of 2016 is materially weaker for new home building than the first half of the year,’ he added. A breakdown of the figures show that detached house sales increased in three of the five mainland states, up 5.2% in Queensland, up 5% in Western Australia and up 1.1% in Victoria. Sales fell 2.1% in South Australia and by 0.1% in New South Wales. During the December 2015 quarter detached house sales increased in Queensland by 4.3% and by 0.3% in New South Wales. Sales fell 15.4% in Western Australia, 10.2% in South Australia and 4% in Victoria. Meanwhile, the latest figures from the Australian Bureau of Statistics show that the monthly volume of new home loans to owner occupiers hit a six year high during December 2015. That means that the pipeline of new home building is likely to remain strong during early 2016, according to HIA senior economist, Shane Garrett. He pointed out that the December data is the best since November 2009. ‘This time around, new home building is benefitting from record low official interest rates, strong demographic demand and resurgent labour markets in New South Wales and Victoria,’ he added. During December, the number of owner occupier loans for the construction of new homes increased by 1.8% with growth of 12.4% in loans for newly constructed homes. Compared with a year earlier, total owner occupier loans for the construction and purchase of new dwellings are 5.3% higher. ‘During November, the major banks unilaterally increased their variable mortgage interest rates. While the figures seem to suggest no immediate impact on new home lending, the risk remains that such tactics could undermine our industry’s ability to meet Australia’s long term housing needs,’ Garrett explained. A breakdown of the figures shows that the number of new home loans increased, in annual terms, most strongly in the Northern Territory with growth of 29.3%, up 21.7% in New South Wales and up 12.3% in Victoria. New home lending volumes also rose in Queensland by 4% but lending volumes fell in Tasmania by 29.6%, in Western Australia by 19.8% and in the Australian Capital Territory by 0.5%. Continue reading
