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Falling rates and rising approvals

Kit Klarenberg
Written By:
Kit Klarenberg
Posted:
Updated:
30/03/2015

The number of mortgages taken out in February rose, both in respect of new house purchases and remortgages, according to figures released today by the Bank of England (BoE).

Driving the rise has been a continuing and historic fall in rates; according to the BoE’s data, the average cost of a two-year fixed-rate mortgage for a borrower paying a 25 per cent deposit dropped to 1.96 per cent in a UK first; five-year fixed-rate mortgages have fallen to 3.05 per cent.

In February, 61,760 mortgages were approved, compared with an average of 60,750 during the previous six months; 32,099 borrowers also switched to new lenders, compared with the previous six-month average of 31,687. The total value of house purchase loans fell (from £10.7bn in January to £10.2bn in February); the total value of remortgages rose (from £5.1bn to £5.3bn).

Borrowers with smaller deposits have also enjoyed price reductions in recent months; the average rate for a 95 per cent mortgage fell to 4.67 per cent in February.

Commenting on the data, Brian Murphy of the Mortgage Advice Bureau said “low inflation, moderating house price growth and a delay in the base rate rise seems to be working in consumers’ favour.”

He went on to attribute the rise in approvals to “fierce” competition between lenders, and the growth of new providers. “The emergence of more specialist lenders to compete with high street brands means that customers have more options than ever to explore getting a loan.”

Matthew Pointon of Capital Economics expects the increased lending to continue. “The regulations are now bedding in and the 2015 stress test, details of which were also released this morning, include a less severe 20 per cent drop in house prices [than previously],” he said. “Early signs that banks are seeking to raise mortgage availability are therefore likely to continue.”

However, Pointon also stated that rates of lending are in fact below Capital Economics’ expectations, given rising levels of employment and the slim likelihood of a rise in interest rates.

“A key reason for the subdued level of lending is a shortage of homes for sale,” Pointon concluded. “But as greater confidence in the economy encourages more households to move, that should help activity levels and mortgage lending to rise further over the coming months.”

 


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