There were more positive signs for the housing and homeowner loan markets this week as the Royal Institute of Chartered Surveyors (RICS) released the figures for its latest survey into potential home buyer enquiries.
The figures for April this year show yet another month on month increase in enquiries from individuals looking to buy a new home and activity levels are now the highest they have been for almost ten years.
A spokesman for RICS commented on the latest figures, he said “There are tentative signs that the market is starting to pick up but transactions remain at very low levels and we are unlikely to see significant improvement while money remains in short supply and the employment picture is uncertain. Transaction levels could benefit from an increase in supply but falling house prices and low interest rates are discouraging sellers as is the latest change in HIPS legislation.
House prices could stabilise in the coming months but prospective purchasers and first time buyers particularly, will continue to encounter challenges while the banks maintain current loan to value ratios and make accessibility difficult even for those who have accumulated considerable equity in their existing properties.”
In other good news for the homeowner loan and mortgage market, Abbey have announced changes to their maximum loan to value ratios for their popular fixed rate loan deals. The UK’s second largest provider of homeowner loans has announced that the maximum loan to value will increase from 60 per cent to 70 per cent this week. Although this is a long way off the 95 per cent loan to value deals of a couple of years ago, it makes life slightly easier for potential buyers who are struggling to get a suitable deposit together and of course, it is another small step in the right direction for the loan markets.
There has been quite a lot of speculation over the past couple of months or so, as to whether or not things are starting to pick up for the housing and homeowner loan markets.
There has definitely been an increased level of interest from potential home buyers, which many experts have simply put down to the time of year rather than a real increase in activity, but this has also been supported by an increase in the number of available homeowner loan products . But the best sign that things are starting to improve can be seen in the increase in numbers of new buy to let loan products which are beginning to appear on the market.
By the end of last year it was almost impossible to obtain a new loan for a buy to let property, unless you only required a low loan to value ratio and had an extremely good rental income from the property, but over the course of the past few months there has been a steady increase in the number of loan products for what has become classed as a high risk area of lending.
According to the latest figures from Mortgages for Business, there has been a 58 per cent increase in the number of loan products available since the end of last year, although at this time the choice of buy to let loans was a mere 20 per cent of that during the previous year.
A spokesman for Mortgages for Business said “Whilst there is no doubt that buy to let mortgage product availability is at about a fifth of the level of 2007, the good news is that product availability has improved since the low of December 2008. With the market starting to bottom out and landlords beginning to buy up properties at low prices, lenders are beginning to feel more secure. In addition we’ve actively been talking to lenders who we have long term relationships with and there is a feeling that we may see a positive shift in lending criteria with a particular focus on loan to value ratios. This is very positive and shows growing confidence in the buy to let market.”
The UK population as a whole now has a greater level of debt on personal loans, homeowner loans and credit cards than at any other time previously and with the effects of the credit crunch and the current recession in the UK, many people with loans are finding at difficult to meet their monthly repayment commitments and are falling into arrears on their personal loans and cards.
This month sees the introduction of Debt Relief Orders (DRO’s), which provide a cheap alternative solution to bankruptcy for many borrowers in financial difficulty on their loans and this has also raised fears that the total number of personal insolvency cases could go through the roof as a result of this new option.
DRO’s are designed to help those individuals on low incomes and with very few assets, as well as reasonably low levels of personal unsecured loan debt and offer a low cost alternative to bankruptcy, whereby an individuals debts could be written off without the hassle and cost of a bankruptcy hearing. As we have reported on in the past, there are strict criteria which must be met before an individual can qualify for a DRO, but even so many critics of the scheme have suggested that this will allow and encourage people to just walk away from their loan responsibilities far too easily, using a DRO as a “get out of debt free” card.
Mark Sands, head of personal insolvency a KPMG commented of the scheme. He said “DRO’s will bring new people into the insolvency system. We are talking about people with very little income, no assets and debts of £15,000 or lower. Until now, they are the sort of people who would have made token payments on the debt or simply laid low until the six year limitation on debt enforcement was passed.”
It has been a frustrating time recently, for those individuals who are looking to either move or buy a house for the first time.
Although the average price of a house has dropped significantly over the course of the last twelve months and interest rates on loans are at an all time low, making purchasing a property more affordable than it has been in many years, a large number of would be buyers are finding it difficult to be accepted for a new homeowner loan and even if they are, they are required to find a much larger deposit than previously, due to the low maximum loan to value ratios which are currently being allowed by lenders.
But as the housing market is beginning to pick up, with increased interest from potential buyers over the past few months, banks and building societies are starting to slowly ease their lending criteria, with several lenders increasing the maximum loan to value ratio they will allow.
According to the latest figures from Moneyfacts, there has been a seven per cent increase in the total number of homeowner loan products available on the market over the course of the last month and of these, 38 deals allow a loan to value of 80 per cent, with another 14 products offering 85 per cent loan to value, there has even been a slight increase for loans of 90 or 95 per cent.
Darren Cook of Moneyfacts commented on the figures, he said “We are seeing a number of mortgage providers slowly reducing their strict criteria and increasing the number of products available to those that can raise a lower deposit, albeit at a higher interest rate. With more mortgages becoming available at higher loan to values, this can be seen as a sign that a number of banks are regaining some confidence within the housing market.”
The monthly cost of borrower’s homeowner loans will remain unchanged once again this month after the Bank of England’s Monetary Policy Committee (MPC) voted to keep the current base rate of interest on hold at 0.5 per cent.
The base rate of interest for loans and also savings is still at its lowest level in the entire history of the Bank of England and many experts are predicting that the rate will remain at this level for the rest of this year, until the economy starts to show some significant signs of improvement.
The decision to keep rates on hold was widely expected by industry experts and doesn’t come as a surprise to anybody, as there would be little benefit, or margin, for reducing interest rates further and it is far too soon to consider an increase, due to the current recession. Instead of interest rate cuts, the MPC has been focusing on its policy of Quantitative Easing, by pumping more money into the economy in a bid to encourage banks and building societies to start offering loans to individuals and help to get the housing market moving once again, which will have a knock on effect across the rest of the UK economy.
So far, the plan seems to be working, as consumer confidence appears to be on the increase and estate agents are claiming that they are starting to receive a higher level of enquiries from potential buyers. Also the number of available homeowner loan products is increasing slightly. One expert commented “QE is clearly now at the forefront of the Bank of England’s attempts to stimulate economic recovery, not only because the bank rate has fallen as low as it can effectively go, but also because of the lack of availability of credit is a serious threat to recovery prospects.”
