The British Bankers’ Association recently confirmed that the number of mortgages granted for house purchases in the UK fell again in September. The level of mortgage lending is now at its lowest for ten years.

In September, gross mortgage lending was £8bn, a 10.8% drop on the same period last year. And three or 4 years ago, an average of 55,000 mortgages were approved each month. Now the figure is just over 31,100.

There were 677 fewer mortgages granted compared to August’s figure of 31,781, although this drop was not quite as bad as analysts had expected. The value of mortgages advanced fell by £0.1bn to £4.6bn, with an average mortgage value of £142,900. Remortgage approvals also declined last month, dropping by 161 to 23,820 whilst equity release and other purpose mortgages dropped by 371.

Demand for new mortgages is still low despite there being more properties for sale and falling prices. Economist Howard Archer from Global Insight said the housing market has very little going for it at the present.

At the end of last week, the Bank of England published its ‘Trends in Lending’ report that warned that house prices are likely to remain unchanged or drop slightly next year as the public sector cuts bite.

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In the 10 years before the credit crisis, homeowners regularly used equity release as a cheap source of finance. In the last quarter of 2003, equity withdrawal reached a peak of £17.1bn. By 2006, the annual figure had dropped back to £50bn.

However, using equity release as a way of boosting spending power came to an abrupt end once the recession kicked in. In fact, homeowners became much more interested in reducing their debts and since March 2008, £44.2bn has been paid in additional mortgage repayments.

In Q2 this year, homeowners reduced their mortgages by £6.2bn, the largest cash injection since the first quarter of 2009.

Mortgage lending companies are making it increasingly difficult for borrowers to avail of equity release due to tougher lending criteria and with home owners concerned about job stability, the priority is now debt reduction.

David Smith, a senior partner at Carter Jonas, said that homeowners are doing exactly the opposite of what the deputy governor of the Bank of England wants them to do, which is spend. But he pointed out that in the long run, reducing outstanding mortgage debt will benefit the housing market and the economy.

The Bank of England is expecting lenders to tighten further their credit scoring criteria over the next three months which will make it even harder for first time buyers to get a mortgage. There are also concerns that people looking to remortgage will face higher rates than they do at present.

Lenders are worried that the government’s austerity measures will lead to higher unemployment with the knock on affect that more people will default on contractor mortgage repayments. But if lending criteria tighten further and people cannot get an attractive rate when they remortgage, the problem will get worse.
The UK’s current outstanding mortgage debt stands at £1.24 trillion.

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The FSA is currently looking for ways to restrict mortgage lending but this could have an adverse effect on house prices warns the CML. And Michael Coogan, the director general of the CML thinks that the UK’s 11 million mortgage borrowers have cause to be concerned about the plan.

For people such as contractors whose personal circumstances do not conform to the “norm”, this could mean they will be unable to obtain a mortgage.

The aim of the exercise is to stop lenders granting mortgages to people who cannot prove they can keep up their repayments. However, the FSA has admitted that this will also lead to a drop in prices.

In July, the FSA pointed out that 43% of all mortgages granted in the first quarter of 2010 were non verified and it claimed the practice was encouraging people to get into unnecessary debt. Research carried out by the FSA shows that nearly 50% of households have no money left after paying their mortgage repayment and associated living costs.

Coogan pointed out that the new regulations could affect first-time buyers, older people looking for equity release and buy-to-let landlords. He also believes that interest only mortgages could disappear altogether.

New regulations could also mean that existing property owners would be unable to move up the housing ladder and more people would be forced to rent rather than buy.

With mortgage lending falling and house prices predicted to drop by as much as 15% between now and the end of 2011, the golden era of home ownership seems to be well and truly over!

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More and more people between the ages of 20 and 34 are still living with their parents, according to data from the HBF.

33% of men and 20% of women are not rushing to leave the family home as the average age for first time buyers without financial assistance reaches 37. Many of these cannot obtain anIT contractor mortgage due to the high deposit requirements laid down by mortgage lenders.

In June, Grant Shapps, the housing minister, said that the government would help first time buyers to enter the housing market. The HBF is now asking the coalition to stick to its word and not remove funding for the HomeBuy Direct scheme when the Comprehensive Spending Review is undertaken next month.

HomeBuy Direct is a government sponsored, equity loan scheme. The purchaser buys at least 70% of the house price and the balance is funded equally by the house builder and the Homes and Communities Agency. 10,000 people have already benefited from this scheme in the last 2 years, according to the HBF.

It’s not only first time buyers who are having problems purchasing property. The buy to let market is also suffering with only 28% of landlords looking to buy more investment property in the near future. The lack of finance for both new purchases and remortgages are cited as the primary reasons why residential landlords are now sitting tight.

Meanwhile news that the value of housing stock in the UK has more than doubled over the past 10 years is causing experts to speculate whether we might see more older people [55 years and above] taking advantage of lifetime mortgage equity release schemes to boost their income.

Equity release schemes are becoming an increasingly popular way to repay existing mortgages, consolidate debt and supplement low pensions.

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Figures released by the BBA last Friday showed that 34,813 home buyer mortgages were approved in June. That was a drop of just under 4.5% (1,605) on the number approved in May. Approvals for remortgages and equity release remained reasonably the same as in May.

Weak demand and the lack of contractor mortgage funding are still weighing down the housing market but David Dooks, the BBA’s statistics director, said that the abolition of HIPS and an increase in sellers is expected to encourage market activity.

An economist at IHS Global insight thinks that we’re likely to see further falls in house prices in the second half of this year and it’s highly likely that prices will continue to drop by as much as 5% and 10% next year.

Meanwhile, homeowners are being advised to make larger mortgage repayments while interest rates remain low. According to the CML, mortgage interest payments now take up just 9.5% of income, the lowest since records started 35 years ago.

The Bank of England has held the base rate at 0.5% for the past 16 months but borrowers feel that that situation will change soon. In anticipation of this, a lot more people are now choosing fixed rate deals. 72% of all applications last month were for fixed rate mortgages as opposed to just over 50% in January.

Early repayment penalty charges do put some people off making one-off or increased monthly payments but homeowners with a fully flexible mortgage can make additional repayments without incurring these charges.

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Brokers have reported a surge in the number of enquiries for buy to let properties following the budget decision to increase CGT to 28% instead of the 40 to 50% that had been predicted by some experts.

In the run up to the budget the market for buy to let properties had slowed down enormously but high levels of demand are back and confidence is returning to the housing market.

New mortgage lending company, Precise Mortgages, launched two new products for the buy to let investor last week; a lifetime tracker at 4.99% and a two year tracker at 4.95%.

In recent years, the buy to let market has seen a massive decrease in the number of available products. In September 2007, there were 3,662 but by the end of June this year, the number was just 266. Lenders pulled out of the market and those who stayed in raised interest rates and fees and tightened lending criteria.

But in a sure sign that the sector really is recovering, there has been an increase of 50% in the number of buy to let loans since last September.

Whilst things are looking good for landlords in the buy to let sector, elsewhere many people are still struggling to meet their mortgage payments. This has led experts to predict an increase in equity release programs.

However, equity release may not be such a good idea. Although raising money on your house can help you cover short-term liabilities, the cost of borrowing for equity release agents is likely to increase and this will have an adverse affect on the rates available.

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IT contractor mortgages could be amongst those to suffer if George Osborne pushes ahead with the Government’s plan to impose a windfall levy on the banks.

The major banks have warned that such a move could lead to tens of billions of pounds less being available to homebuyers and small businesses.

Senior banking executives say that the extra tax would leave them with less money to put aside as capital reserves, thus reducing their ability to lend.

Gross mortgage lending fell dramatically during the economic crisis. In 2007 it was £362bn, but by last year the figure was just £143bn. Top bankers argue that even a modest levy could reduce mortgage lending by up to £60bn.

The Conservative Party manifesto promised to impose the levy and the Chancellor is expected to unveil his plan in the emergency budget on 22 June. But the levy seems to be at odds with Vince Cable’s plans to force the banks to make more funds available for small business loans.

Any reduction in contractor mortgage lending will be bad news for the housing market but first time buyers could face even greater problems. Many choose to rent a property whilst saving for the deposit they need to obtain a mortgage. But rents are now soaring as the already struggling buy to let market worries about proposals to increase the CGT rate.

Fewer rental properties are coming onto the market and in the last few weeks average rents have increased by up to £10 a week in popular areas. In some areas, the number of available rental properties has dropped by 60%.

An increase in CGT might also cause landlords to remortgage as an equity release measure instead of selling. Again, this would reduce the number of homes available to prospective buyers.

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