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Mortgage Concerns May Lead to Less Lending
The new year may be a time of careful borrowing to clear debt and spending due to uncertainty over the immediate future of the UK housing market, as the DCLG (Department of Communities and Local Government) had reported it cooling in October and Nationwide, Halifax, and the Royal Institution of Chartered Surveyors reported falling house prices in November.
According to the DCLG, property prices rose by just 0.1 percent in October, compared to 0.3 per cent in September, and the average price of a home went up £84 from September to £220,195. The British Bankers Association said that there were 19% fewer mortgages lent in October than in September - especially fixed-rate mortgages, as people anticipated a cut in interest rates. These statistics led many commentators to believe that the housing market would slow down due to high prices and borrowing costs.
This analysis would seem to be borne out by findings from both Halifax and Nationwide who say house prices fell steeply in November. Halifax said prices dropped by 1.1%, the largest reduction for 11 years. Nationwide noted that prices decreased at their fastest rate for more than 12 years. Meanwhile, the Royal Institution of Chartered Surveyors said that house prices UK fell for the fourth month in a row in November with the only rises seen in Scotland.
Following the Bank of England's decision to cut interest rates from 5.75 per cent to 5.5 per cent last week, Michael Coogan, director general of the Council of Mortgage Lenders, said:
“October is the last month we expect lending volumes to be higher than a year ago as lenders and borrowers will behave more cautiously in an uncertain and slowing market environment.
Lenders have already responded to the credit squeeze by tightening lending criteria and increasing some loan costs. And looking ahead, any uncertainty in the housing market may mean that borrowers are less willing to stretch themselves financially.
For those customers coming to the end of their fixed rate mortgage in 2008, the potential impact of higher monthly payments will be diminished by the fall in bank rate this month and other rate reductions to come early in the New Year.“
Although some mortgage providers have passed on the interest cut in full, it still seems likely that consumers with poor credit will have to be a lot more careful about how much they borrow against the value of their homes. Lenders did receive an early Christmas present today though as central banks released enough cash into money markets to reduce the rate at which banks lend to each other, hopefully meaning they’ll soon be in a more amenable mood at this time for giving.
Loan News posted on 13 December 2007
