by Mark Johnston
The mortgage market seemed to be looking healthy at the start of 2012, with a peak of 2,757 deals recorded in February by moneyfacts, the highest monthly figure since 2007.
However, the deals on offer now seem to have taken a sharp downturn in March and the beginning of April, when they dropped back to 2.325 and 2,288 respectively.
Mortgage approvals for home purchases also fell sharply to 43,450 in March, their lowest level since December 2010. There were 7% fewer purchase approvals than in March 2011, making it the first year on year fall since May 2011. Its fall is blamed on the increasing funding costs which have forced banks to reduce their lending to borrowers with small deposits.
Many experts believe that the end of the stamp duty concession may have also had something to do with the drop.
It is clear that a huge number of popular high street lenders and banks have started to pull back on their lending, making restrictions tighter and also making high loan to value (LTV) mortgages much tougher to get.
A Bank of England survey has recently revealed that a majority of lenders have already or are planning to cut their mortgage lending considerably over the next few months and credit scoring criteria is set to get even tighter that it has been for a few years now.
Wholesale credit availability conditions, changing risk appetite and expectations of house prices are the main reason for the limited credit availability.
Paul Diggle, economist for Capital Economics believes “economic growth will be flat in 2012 as a whole and there is a high chance of another recession”.
Richard Sexton, director of e.surv, said “up until now high street mortgage lenders have been ale to absorb steadily increasing costs, rather than passing them on to the consumer. However, now that banks can no longer afford to take on extra costs, those weaknesses are beginning to come to bear once again”.
Ray Boulger, of mortgage brokers John Charcol, has stated that “lenders such as Santander have certainly reduced the number of products they offer”.
With these changes taking place, the mortgage market in the UK looks set to stagnate over the course of the year, which will affect the property market negatively as well. This will be a great concern for those looking to buy or sell properties this year.
First time buyers, of course, will be the hardest hit as banks and building societies reduce the availability of mortgages in response to increasing funding costs and tightening credit conditions.
Property expert Henry Pryor therefore feels that people should now consider locking in to low interest rates, especially if they can find a competitive 5 year fixed rate deal. He added “if home owners think they have had it bad, they can console themselves with the fact they are more fortunate than first time buyers, who need at least a 10% deposit”.
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