Industry body says raising a deposit and getting a mortgage ‘are beginning to loom less large’ as obstacles to buying home
Is the mortgage freeze beginning to thaw? One of the main industry bodies for banks and building societies seems to think so, with a prediction yesterday that mortgage lending this year will be up 9% on 2012 as borrowers take advantage of greater home loan availability and more attractive rates.
The Council of Mortgage Lenders said house-buying activity was “robust” in the last three months of 2012, and claimed that recent household surveys indicated that raising a deposit and getting a mortgage “are beginning to loom less large” as obstacles to buying a home.
Its prediction coincided with Lloyds Banking Group’s announcement yesterday that it was committing £6.5bn towards helping first-time buyers get on the housing ladder by the end of 2013 – the largest such sum so far set aside by a lender.
That is clearly good news for borrowers, and suggests the government’s “funding for lending” scheme – which went live in August and allows lenders to borrow money from the Bank of England at below market rates – is finally starting to have an impact.
But question marks remain over whether such moves will lead to a big increase in the number of mortgages open to those who can only manage a small deposit of perhaps 5% of the property’s value. Only a small handful of lenders – mainly smaller players such as the Newcastle, Melton Mowbray and Hanley Economic building societies – offer “standard” mortgages allowing people to borrow 95% of the property’s value.
In recent months, banks and building societies have cut mortgage rates to some of the lowest levels ever seen – but these headline-grabbing deals have typically been reserved for those customers borrowing no more than 60% or 70%. For example, HSBC and Yorkshire building society are among the lenders currently offering two-year fixed-rate mortgages priced at 1.99%, provided the customer is borrowing no more than 60% of the value of the property.
Ben Thompson, managing director of Legal & General Mortgage Club, said: “The real winners remain the fortunate few who fall into the ‘low risk’ category of lending. However, there is a large market of first-time buyers who remain underserviced, with low-risk lending becoming increasingly commoditised and overcrowded. As a result of this, aAt some point there will need to be a shift in lending criteria, with banks and building societies moving up the risk curve and offering higher LTVs.”
David Hollingworth at mortgage broker London & Country added: “This doesn’t herald a big rush of lenders looking to offer 95%. That is still very much at the margins.”
Nevertheless, lenders have been jostling to prove their first-time buyer-friendly credentials of late. In November, HSBC said it had approved £4bn of lending to those who had never bought before during the first nine months of 2012, which translated into help for 33,000 buyers. That same month, Nationwide claimed it was responsible for almost one in five of all new mortgages to first-time buyers. Meanwhile, Barclays has just introduced a new deal called Family Springboard, aimed at giving new buyers access to an affordable fixed-rate mortgage with a 5% deposit, provided their family opens a savings account linked to the loan into which they put 10% of the purchase price for three years.