Mortgage Market Stagnates Against Positive Figures

by Mark Johnston

Reports out today showing the state of the mortgage market in May are pointing towards a stagnated market. Many analysts are unexcited about the boost in lending and still predict little improvement in the housing markets due to the slow economic recovery.

The Bank of England which is responsible for the UK economy alongside its new powers from the now defunct FSA; is tracking a strong rise. The Bank of England tracks money supply to measure how well its £200 billion asset buying scheme is working. These figures are currently showing that the UK economy has had its strongest rise in the last 3 years.

Capital Economics, a leading property research company said “Approvals for house purchases remain at around 15 percent below their November peak and nearly 50 percent below 2006 levels”.

Mortgage approvals for May were 49,815 which is just below the forecasted 51,000. Mortgage approval figures are usually a good illustration of where UK house prices be in the coming months. Low approval rates like what we are looking at indicates low poor performing house prices in the coming months.

The recent budget could further slow any recovery in the market. The weak economy, together with the Conservative/Liberal coalition austerity drive may slow the figures down even further. The coalition announced plans to cut the massive budget deficit which is running around 11% of the national output. Today’s reports further confirm that the struggling economy and peoples fears about the impact of the spending cuts has led to the under performing mortgage market.

Economists forecast that consumer credit would increase by 0.1 billion pounds with mortgage lending up by 0.8 billion pounds. Consumer credit did rise and overall was much faster than forecast but with credit card lending showing its weakest position since 2009 there were mixed feelings.

Although we are starting to see some impressive rates, some under the 2% and others with 90% loan to value (LTV), recover is slow. Borrowers are still very weary of taking on any further credit as they do not know how the new budget is going to effect them. Current mortgage holders are using the record low base rate to either give them some additional spare income or to pay off their current debts. Many consumers are trying to reduce their debts and but themselves into a sound financial position just in case they have to weather the storm.

The Bank of England are starting to see signs that credit is starting to flow and early shoots of a recover are beginning to show. This said, there is still along way to go as the UK tries to come out of the deepest recession since the 1940’s.

Throughout the crisis; the Bank of England has trieed to counter the recession and credit crunch with a range of tactics from cutting interest rates to an all time low of 0.5% to pumping billions of pounds into the UK economy through quantitative easing.

Hopefully these signs are a guage of how these expensive measures are working. Whichever way you look at it the recovery is going to be slow and painful but lets hope that we are starting to see a glimpse of the light at the end of the tunnel.

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