Keeping a Close Eye on the Mortgage Market

Everyone involved in the property market has its eyes and ears finely attuned to the signals that the mortgage market could improve in 2011. The improvement couldn’t come soon enough as the Council of Mortgage Lenders reported the sixth month of falling gross lending volumes. The decrease in lending levels is the main cause of why property transactions are subdued and hence must be increased if the market is going to be able to grow again with new homes for sale.


Although those fortunate to be at the top of the property ladder may not consider themselves at the mercy of the bank’s lending (or anti-lending) policy for high loan-to-value (LTV) mortgages; it is vital that the lower end of the market (who depend on this type of mortgage) must also remain buoyant. The market relies heavy on the chain effect and weakness in any part of the chain will have overall consequences; essentially it slows down activity at all levels and could delay transactions.

The internal policies of the main lenders have led to an increase in different types of products for the LTV mortgages in particular. Moneyfacts (the independent property comparison website) claims that there has been a significant increase in mortgage products during the course of 2010, including a 76 percent increase for an LTV mortgage that requires a 90 percent loan value. Although this is an impressively high figure, it must be noted that this rise came from a very low base.

Another factor that prospective and new home owners alike will be paying close attention to is the interest rate. The Bank of England base rate is likely to move later in 2011. Because of this anticipated move, many lenders will increase their own rates prior to the announcement. Rates have fallen over the last year; fixed rate on average decreasing by 0.3% and the floating rate by 1% so that the overall mortgage rate was 3.8% at the end of September 2010. Although these are extremely low rates, it has not encouraged all new home buyers to choose the floating rate as there is uncertainty around how long these rates can last for. Countrywide estate agents reported that up to 75% of new home buyers choose the fixed rate products. Once the base rate moves and the interest rates increase, there will be a surge of UK homeowners who will look into switching mortgage products to get a better deal; for example, 40 percent of the Nationwide building society’s loan book is on the standard variable rate.

The next few months will be an interesting time for the UK mortgage market for new and existing home owners alike. The key will be the amount of movement the Bank of England gives the base rate and also the internal policies of the major lenders for LTV mortgages.