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Tough new mortgage rules should not have an impact on the availability of competitive fixed rate loans, a mortgage trade body said today.
The tighter regulations, which come into force on April 26, require lenders to carry out a detailed assessment of borrowers’ ability to keep up with their loan before advancing them money.
The strong emphasis on affordability has sparked speculation that banks and building societies may scrap short-term fixed rate deals at low rates, as they focus on responsible, sustainable lending.
Under the new rules, known as the Mortgage Market Review, lenders will also be able to ask applicants for evidence on how much they spend on everything from food to childcare to debt repayments if they are concerned about affordability.
They will also carry out an interest rate ‘stress test’, to ensure borrowers can continue to meet their mortgage repayments even if the cost of borrowing rises.
But the Council of Mortgage Lenders (CML) today said there was nothing in the new rules that would lead to lenders pulling their fixed rate products or hiking the price of them.
Bernard Clarke CML communications manager, said: “There is a very strong attachment among consumers to two year fixes.
“They have proved extremely popular overtime and the mortgage market has a strong bias to consumer preference.
“There is nothing in the Mortgage Market Review that would bring them to an end.”
Just under nine out of 10 mortgages taken out during February were fixed rate deals, according to the CML.
The group attributed the strong preference for these loans to the fact that interest rates were likely to start rising sooner than previously expected on the back of the UK’s strengthening economy.
Only 6 per cent of borrowers opted for a tracker deal, which moves up and down in line with changes to the Bank of England Bank Rate, while just 2 per cent of homeowners took out a discounted rate.
Meanwhile, the Bank of England’s Trends in Lending report showed further improvements in the mortgage market during the early part of the year.
The Bank said mortgage approvals for house purchase by all UK lenders had continued to rise during the three months to the end of February.
It added that although approvals fell slightly in February, they remained “considerably higher” than for the same period in 2013.
At the same time, interest rates on two year fixed rate mortgages have remained broadly unchanged since the start of the year, despite an increase in two year swap rates, upon which the deals are based.
But the cost of five year deals has started to edge up, as lenders pass on some of their higher funding costs to consumers.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The volume of mortgage lending continues to rise as more buyers take advantage of the cheap rates available to get on the housing ladder or move up it.
“Two year fixes were largely unchanged in the first quarter but five year fixes have started to edge up, partly as a result of higher swap rates which have doubled in the past year.
“However, there are still five year deals pegged at around 3 per cent for those with sizeable deposits, which is excellent value.”
He added that the new mortgage rules were likely to lead to a slowdown in mortgage processing while they “bedded in”, but once any glitches were ironed out, the mortgage market should continue to perform strongly for the rest of the year.
The number of people forced to rent out their home because they cannot sell it has fallen to a record low as the property market continued to boom, writes Nicky Burridge.
Buoyant sales levels led to just 13 per cent of letting agents reporting an increase in the number of so-called ‘accidental landlord’s during the first three months of the year.
It was the fourth consecutive quarter during which the level of people renting out homes because they could not sell them fell, according to the Association of Residential Letting Agents (ARLA).
The figure was well down on the peak of 94 per cent of letting agents who reported a rise in accidental landlords at the beginning of 2009, when ARLA first introduced the question to its survey of members.
Accidental landlords became a feature of the post-credit crunch housing market when the mortgage drought hit sales levels, forcing many people to let their home after being unable to sell it.
Ian Potter, managing director of ARLA, said: “The resurgence of property prices and buyer demand in many areas is reducing the number of so-called accidental landlords.
“Despite the reduction of landlords in this situation, wider investment in rental properties remains strong across the market.”
The ARLA survey is the latest in a run of positive data on the housing market, as the improved economic outlook, falling unemployment and low interest rates have combined to boost property sales.
The average value of a home in England rose almost £14,000 during the past year to more than £258,000, according to Zoopla.
The Council of Mortgage Lenders said total mortgage advances soared by 43 per cent during February, compared with the same month of the previous year, to stand at their highest total for February since 2008.
At the same time, the number of homes changing hands rose for the tenth consecutive month, according to HM Revenue & Customs.
Meanwhile, ARLA said the fall in accidental landlords was changing the shape of the private rented sector, with long-term investment landlords once again becoming a strong feature of the market.
There was a slight increase in the number of letting agents who reported landlords decreasing their investment in property by selling up, with 20 per cent of agents noting this phenomenon, compared with just 15 per cent in the final three months of 2013.
But among landlords who were retaining their portfolios, the vast majority were in it for the long term, holding a property for an average of 19.8 years between buying and selling it.
The survey – of 637 of letting agent offices and 1,040 landlords during the first three months of this year – found that 45 per cent of landlords said they had let a property in order to benefit from both rental income and capital appreciation, while 37 per cent saw it as an investment for their long-term future.
Families are being forced out of the capital as figures show there are no houses for sale in Central London with a garden costing less than £500,000, it has been claimed.
It is the latest evidence of the struggle families in London face to find an affordable home.
Soaring property prices mean many families have been priced out of the capital and are forced to move further afield, spending hours commuting to work every week.
Zoopla shows less than 20 residential properties listed for sale in Central London in this price bracket with a garden. All of the properties are flats and a garden is defined as a balcony or patio rather than a lawn area.
It compares to an average increase of property values in England of almost £16,000 to £256,975.
Cheaper and more spacious property is available in outer London. But families’ options are still limited, with fewer than 900 homes for sale in all of London having a garden and costing less than £250,000.
Zoopla shows a total of 890 houses listed for sale in London that have a garden and are under the £250,000 Stamp Duty threshold – where buyers must pay 1 per cent of the price in tax. The thresholds jump significantly above £250,001, starting at 3 per cent and rising to 7 per cent for those properties costing more than £2m.
The majority of these homes are terraced properties, with just 10 being detached.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “While rising house prices are welcomed by homeowners, much of the increase in prices is due to the serious lack of housing stock on the market.
“This is particularly true towards the bottom rung of the ladder where there are precious few family homes with gardens coming up for sale costing less than £250,000.
“Families are being forced to buy further and further afield in order to get a reasonably-sized home with a garden at an affordable price.”
London properties for sale with a garden for £250,000:
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Chancellor George Osborne is determined to ‘avoid the mistakes’ of the last decade and ‘keep Britain moving’.
At the heart of his housing policy announced in the Autumn Statement is building more homes.
He said: “Some of the most important infrastructure for British families is housing and we have to confront this simple truth: if we want more people to own a home, we have to build more homes.”
He also announced £1bn of loans to unblock large housing developments on sites around the country and confirmed that lenders Aldermore and Virgin are set to join the Help to Buy Scheme. The Help to Buy Scheme was introduced earlier this year to help those with a small deposit to buy a home.
“I can announce today that Aldermore and Virgin, two challenger banks, expect to join the scheme this month. Help to aspiring families and building more homes – that’s what we stand for,” said Osborne.
But he added a word of caution, saying: “We must also avoid the mistakes of the last decade.
“We want a responsible recovery….We want a functioning, stable housing market.”
Other items included:
- Regenerating some of the most run down urban housing estates
- Councils to sell off the most expensive social housing, so they can house more families for the same money
- Giving working people in social housing a priority right to move if they need to for a job
- Introduction of Capital Gains Tax on future gains made by non residents who sell residential property in the UK
The measures received a mixed welcome from the housing industry, with NHBC’s chief executive, Mike Quinton, saying: “We welcome today’s Autumn Statement highlighting measures to support house-building in the UK.”
David Newnes, of LSL Property Services – owners of the largest lettings agency in the UK – said: “Today the Chancellor has laid down some concrete steps to address the lack of supply in new housing, but this is only the start on the wider path to solving the problem. While Government initiatives such as the Funding for Lending and Help to Buy schemes have bolstered the recovery this year, the elephant in the room has always been the woeful shortage of new homes.
“The pledge of £1bn of loans to unlock large housing developments is certainly a welcome move and plans to increase local authorities’ housing revenue account borrowing limits are encouraging measures, both will play a part in boosting house supply, while at the same time preventing house prices from rising out of reach of buyers. Equal focus on expanding the Right to Buy offer and the Government’s investment into affordable housing shows efforts are being made. The Government must continue to lend a helping hand to aspiring buyers, so that they can achieve their dream of home ownership, while emphasising the need for more homes to support a healthy rate of recovery for the market as we move into 2014.”
Elsewhere, on the taxing of non residents, Liam Bailey, of estate agents Knight Frank, said: “Tax is not the primary driver for the majority of international buyers of residential property in London. We anticipate that the removal of the CGT exemption for non-resident purchasers will have only a marginal impact on demand and pricing.”