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Mortgage products rebound with second highest monthly increase taking total to over 5,000

Mortgage availability increased by 774 products in April to 5,146, the second largest monthly rise on record.

It marks the first time the number has risen above 5,000 since May 2022 and is the highest count since February 2022 when it stood at 5,356.

The only bigger monthly increase was October to November last year when 869 new products were launched, the data from Moneyfacts shows.

There are now more than double the number of home loans on the market than October 2022 at the height of the mortgage crisis when rates rose sharply in the mini-budget fall out.

Higher borrowing costs as a result of the unfunded list of commitments made by Liz Truss’ government forced lenders to withdraw products from the market and push up interest rates.

From September to October the number of products dropped by 42 per cent to 2,258. In November they recovered slightly to 3,117.

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For higher deposit deals, available mortgages at 60 per cent loan to value in April increased by 45 to a total of 702, the highest at that borrowing ratio on Moneyfacts’ record.

For borrowers with smaller deposits there is also an increase in choice. The 85 per cent LTV product bracket saw one of the largest rises over the month and at 806 available deals the tier is at the highest level on Moneyfacts records.

But, there is a sting in the tail. Mortgage rates have nudged higher this month for both two-year and five-year fixed rates. It is the first time this year average rates have increased over a month.

The two-year fixed rate average across all loans is 5.35 per cent and the five-year average is 5.05 per cent – this is up from 5.32 per cent on two years and 5 per cent on five years in March.

At the same time the average standard variable rate is now 7.3 per cent, the highest level since February 2008 when it hit 7.31 per cent.

A standard variable rate is the rate a lender moves you to when your fixed or tracker mortgage expires. They track the Bank of England base rate plus an additional charge.

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Rachel Springall, of Moneyfacts, said: ‘Interest rate competition among lenders was mixed in the past month, however it is widely expected that fixed mortgage rates will reduce over the next few months, but this will be determined by fluctuating swap rates and lenders appetite for business.

‘Those borrowers with a large deposit or equity may be pleased to see the average rates at 60 per cent loan-to-value for a two-year or five-year fixed mortgage stand below 5 per cent.’

However, for those who coming off a two-year fixed mortgage and wish to refinance on the same term (60 per cent LTV) face a shock.

The average rate on a two-year fixed mortgage in April 2021 was 1.63 per cent, compared to 4.95 per cent for April 2023.

This significant rise in rates means that for a £200,000 mortgage over 25 years a borrower would have paid £812 a month two years ago would now pay £1,163 – an increase of £351.

Earlier this year a brief rates war between lenders saw some fixed deals dip to as low as 3.75 per cent. However, they have since risen again but there are still deals below 4 per cent on offer.

By Fran Ivens

Source: This is Money

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What’s Happening With UK Mortgage Rates?

The Bank of England raised interest rates in September from 1.75% to 2.25%. The 0.5 percentage point increase marks the seventh rise since December 2021 when Bank rate stood at just 0.1%. It also puts Bank rate at its highest level for 14 years.

Interest rate rises, as well as sterling volatility and market uncertainty, is pushing up the cost of mortgages. Lenders including NatWest, TSB, Santander, Halifax, Virgin Money and Skipton Building Society have pulled or repriced mortgage deals upwards since last week, and more are likely to follow.

With events changing on a daily basis, it’s important to keep calm and objective. Here’s some more detail on How To Ride Out The Mortgage Storm.

Interest rates, mortgages…
So what do climbing interest rates mean for the cost of mortgages?

The estimated two million homeowners on variable rate deals, such as base rate trackers, will see an almost immediate rise in their monthly repayments following the recent Bank rate rise to 2.25%. As an example, a tracker rate rising from 3.5% to 4% will cost almost an extra £60 a month on a £200,000 loan.

Remortgagers and first-time buyers will also be faced with higher mortgage costs when they come to source a deal, with the cost of new fixed rates having already factored the latest rise into the price.

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… house prices and Stamp Duty
As well as more expensive mortgages, those looking to buy or move home are grappling with rising property prices. The average cost of a property coming to the market increased by 0.7% in September (£2,587) to £367,760, according to Rightmove. Annually, average asking prices were 8.7% higher in September than a year ago.

However, Stamp Duty cuts announced in last month’s Mini Budget – which raised the nil-rate band on the purchase of a property from £125,000 to £250,000 – means that a third (33%) of all homes listed on Rightmove are now exempt from the tax.

Fixed rate mortgages
More and more homeowners are opting for longer-term fixed mortgages in a bid for stability in the face of continued rising interest rates and economic uncertainty. But while, historically, borrowers would pay more to fix in for longer, the price gap is closing.

According to mortgage broker Trussle, the top interest rate on a no-fee 75% loan-to-value fixed rate mortgage is now 4.45% over two years or 4.55% over five years. Over 10 years, the cheapest no-fee fix is currently 5.39%. Refer to our mortgage tables below for what deals are available today for your deposit level and circumstances.

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Why are interest rates rising?
The Bank of England’s Monetary Policy Committee (MPC) uses interest hikes as a means of cooling the economy and taming rising inflation. The Consumer Prices Index (CPI) measure of inflation already stands at a heady 9.9% in the 12 months to August against a government target of 2%.

And with the pound falling dramatically on the international currency markets last week, there are fears that inflation could continue to balloon, prompting the Bank of England to hike rates to as high as 6% from their current 2.25% by next year.

The Bank’s MPC is scheduled to next meet on 3 November to decide on interest rates. However, depending on what happens in the markets and wider economy, there is a possibility that an ’emergency rate rise’ could happen sooner, although the Bank has suggested this is unlikely.

One of the main longer-term drivers behind rising inflation is the cost of energy. The government has intervened by replacing the energy price cap – which had been due to send energy prices soaring to over £3,500 a year from 1 October – with a cheaper Energy Price Guarantee.

This will limit the cost of typical-use household bills to £2,500 a year for two years, with an additional £400 automatic discount applied to electricity bills for every household between October 2022 and March 2023.

What are today’s mortgage rates?
With upwardly-mobile Bank and inflation rates, keeping track of mortgage costs is challenging – especially right now when rates change, and deals can be pulled, on a daily basis.

By Laura Howard

Source: Forbes

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Mortgage lenders confident in economic outlook

Mortgage lenders are in a better position currently than they have been during previous financial shocks, a member of the Bank of England’s financial policy committee has said.

During a speech last week, Dame Colette Bowe, external member of the committee and former chair of the UK Banking Standards Board, reiterated the BoE’s position that the current shock being experienced by the financial system does not pose the same threat as previous shocks.

Speaking at Bayes Business School for a research workshop on the future of financial mutuals, Bowe gave an overview of the FPC’s view on household indebtedness and the BoE’s mortgage market tools and how they relate to financial stability.

Referencing the interplay between mortgage debt and financial stability that characterised the 2008 global financial crisis, Dame Bowe said it was important to remember the role mortgage debt and lender resilience play in financial stability.

“Unsustainably high mortgage debt has historically affected UK financial stability via two channels. The first is through the effect on borrower resilience, where highly indebted households face challenges from real income cuts and/or mortgage rate increases and cut spending sharply – which can amplify a downturn, with potentially systemic consequences for financial stability,” Bowe said.

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“Second, shocks can be transmitted to financial stability through the lender resilience channel, where lenders experience losses when highly indebted households face re-payment difficulties. These losses can result in a reduction of the supply of credit to households, businesses and the wider economy.”

Bowe added the BoE maintains its position that the current shock “does not at this stage pose the same risks to lenders and the financial system as previous shocks” but that the PFC continues to monitor the resilience of banks to further downside risks.

“Lenders are well capitalised and have limited direct exposures to Russia and Ukraine, as well as being resilient to risks stemming from sectors which are particularly exposed to higher commodity prices,” Bowe said.

Yorkshire Building Society director of mortgages, Ben Merritt agreed with Bowe and said he was confident that the industry will weather the current conditions.

Merritt said: “Whilst we accept that the current economic conditions are quite unique and will likely have a significant impact for a long time to come, the regulatory environment and the resilience of the financial services sector provides us with confidence that the industry will weather these conditions.

“We regularly assess the market outlook, conducting thorough stress testing, and we remain confident in our position as a safe and secure financial organisation”.

This sentiment was also echoed by Natwest’s chair and former deputy governor of the Bank of England, Sir Howard Davies.

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Commenting on rising energy costs and the economic outlook last week, Davies told BBC Radio 4 that “it’s important we do not talk ourselves into a worse situation than we are actually in”.

“The economy is not in that bad of shape. We’ve seen at the bank that consumer spending has been fairly robust. People’s deposits, and deposits of customers in banks have actually still gone up in the first half of this year, and we are not seeing significant distress in the mortgage market,” Davies said.

Later this month, the FPC will launch its annual cyclical scenario stress test, which will assess the UK banking system’s resilience to deep simultaneous recession, real income shocks as well as large falls in asset prices and higher global interest rates.

But Bowe pointed out that the FPC is also conscious of less severe scenarios and the pressure the rise in living costs and interest rates will put on UK households over the coming months.

“This will test the degree of borrower resilience in the system as borrowers struggle with bills or [to] manage their other spending commitments,” Bowe said.

By Jane Matthews

Source: FT Adviser

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Need a new mortgage next year? Lock into a low-cost rate today

Banks are increasingly allowing mortgage borrowers to lock into a new deal earlier to keep their business and discourage them from switching lender.

Millions of fixed-rate deals are coming to an end over the next 15 months and after six consecutive Bank of England interest rate rises since last December homeowners are getting their skates on.

“We regularly get calls from homeowners whose mortgages finish in a year’s time and they want to know what’s happening to rates,” said Aaron Strutt from the mortgage broker Trinity Financial. “They ask how they can lock into a new deal early and how much it’s going to cost for them to get out of their current deal.

“Lenders are making it easier to switch early so borrowers can lock into the current rates. With the scale of price hikes from the biggest lenders, prices will be much more expensive in a few months.”

Usually, there’s a mismatch between how early you can secure a deal with a different lender and when you can remortgage with your existing lender, in what is known as a product transfer. You can secure a new deal elsewhere up to six months before your current deal ends but a product transfer is normally only allowed up to three months early.

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Nearly 70 per cent of all remortgaging deals involved a product transfer in the first three months of this year, according to banking trade body UK Finance.

With mortgage rates having risen rapidly since the end of last year, borrowers want to lock in new rates as soon as they can before rates go up further. In January the average rate on a two-year fix was 2.52 per cent and on the average five-year fix it was 2.71 per cent, according to Moneyfacts; now they are 4.24 per cent and 4.33 per cent respectively.

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There were 329,510 remortgages approved between January and July, according to the Bank of England, up 36 per cent on the same period last year.

Last Thursday, Barclays told existing borrowers they can secure a new rate with the bank five months before their current deal ends, up from three months. The previous week, HSBC increased its switch window from three months before a deal ends to four, and in July NatWest increased its window from four to six months.

This is especially good news for borrowers who may fall foul of tighter affordability criteria and be unable to borrow as much from a different lender because they will always be able to switch products at their current bank.

By George Nixon

Source: The Times

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I could have fixed my mortgage rate for years longer. I’m a fool

I have been having flashbacks. Not the kind I used to have, of when I went hiking in Yosemite National Park without a map and ended up sliding down a bear-infested trail on my backside in the dark. No, these flashbacks relate to a time in my more recent life, and an ill-fated conversation with my mortgage broker in July last year that led to a severe financial misjudgment.

My wife and I had just sold our house while juggling careers and three small children, and it was time to choose a mortgage for the new one. Should we take a two-year fixed-rate deal or a five-year one?

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The five-year mortgage was with Santander, and the two-year with the West Brom building society. Both had interest rates of just over 1.2 per cent, and our broker pushed for the two-year deal. The Bank of England base rate was 0.1 per cent, and he said he would be stunned if the base rate or mortgage prices went up significantly by summer 2023, when we’d be due to renew. Plus (and after this week’s 0.5 percentage point rate rise, this is makes me squirm the most) he reckoned being stuck with a five-year deal and its hefty early repayment charge was the riskier option.

The clincher was that the West Brom would lend us £40,000 more than Santander would because it had a more relaxed affordability calculation, and we wanted that money — the place needed some work. It was an interest-only mortgage, which appealed because the repayments would be low while my wife was temporarily out of work. The two-year deal it was.

Fast forward a year and . . . yes, I know, I’m an idiot.

Since we took out our mortgage the base rate has risen six times, now sitting at 1.75 per cent. It is heading in only one direction, and could be as high as 3 per cent when our two-year fix term ends.

Lenders, of course, follow the base rate when setting their rates. According to the data firm Moneyfacts, the average two-year fixed-rate deal has gone from 2.55 per cent to 3.74 per cent since we took out our loan, and the average five-year fixed rate is up from 2.78 per cent to 3.89 per cent. Next summer we may be offered 4 per cent, which could mean paying £1,000 more each month than we do now.

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So what can we do about it? Work is about to begin on the downstairs of our house, and it’s becoming ever more expensive because of inflation — we’ve now scaled back our plans and are leaving a tumbledown garage in place. We’ll mitigate the impact of our bigger future mortgage payments by setting aside money each month, and perhaps overpaying on our existing deal. We’ll burn through our savings.

However, for many borrowers coming off fixed rates next year, the prospect of a deal at a much higher rate is going to trigger a “payment shock”, as the broker Andrew Montlake puts it. Of course, at this time of pandemic, war, rising inflation and heatwaves, planning anything is difficult — from when to remortgage to how often to water the garden. I’ll be far from alone in facing nasty flashbacks over the coming months.

By DAVID BYERS

Source: The Times

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Mortgage affordability test scrapped by Bank of England

Mortgage borrowing rules have been eased after the Bank of England scrapped an affordability test.

The “stress test” forced lenders to calculate whether potential borrowers would be able to cope if interest rates climbed by up to 3%.

Removing the test may help some potential borrowers get loans, such as the self-employed or freelance workers.

But other rules such as strict loan-to-income limits will not make it easier for most people to get a mortgage.

The withdrawal of the affordability test was announced in June but has come into effect on Monday.

“Scrapping the affordability test is not as reckless as it may sound,” said Mark Harris, chief executive of mortgage broker SPF Private Clients.

“The loan-to-income framework remains so there will still be some restrictions in place; it is not turning into a free-for-all on the lending front.

“Lenders will also still use some form of testing but to their own choosing according to their risk appetite.”

In other words there will not be an immediate impact for borrowers as lenders will not need to change the way they assess loans.

However, some may well change their own rules in the future.

Mark Yallop, chairman of the Financial Markets Standards Board, said although the change would make it “slightly easier” for some borrowers to get a mortgage, he did not think with would have a significant impact.

“The biggest constraint on new mortgages is the ability of borrowers to afford a deposit,” he added.

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What was the scrapped test?
The mortgage affordability test was introduced in 2014 as part of a widescale tightening up of the mortgage market to ensure there were no repeats of the mis-selling scandal that partially contributed to the 2008 financial crisis.

The rule was put in place to ensure that borrowers did not become a threat to the financial stability of lenders by taking on debt they subsequently might not be able to repay.

Lenders had to not only work out if borrowers could afford a mortgage at the rate they were being offered, but also work out how they would be affected if interest rates soared by 3%.

Borrowers who could not prove they could cope with such an eventuality might have been turned down for a loan on that basis, even if they could easily afford a mortgage at the existing rate.

For that reason the test was seen by some as a barrier for some borrowers.

“The rule change could have a positive effect on borrowers who have been disadvantaged when it comes to getting on the property ladder,” said Mr Harris.

For example, some potential first-time buyers who have been comfortably affording rents far higher than potential mortgage payments have failed affordability assessments.

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What checks remain for borrowers?
There are some key protections in place to help ensure that borrowers don’t take on loans they may not be able to afford.

The main one is a loan-to-income “flow limit” which limits the number of mortgages that lenders can grant to borrowers at ratios at or greater than 4.5 the borrowers’ salary.

In short, it is very rare that a lender will consider a higher loan-to-income ratio because of the restriction.

After a review of the rules in 2021 the Bank of England’s Financial Policy Committee judged that “the LTI flow limit is likely to play a stronger role than the affordability test in guarding against an increase in aggregate household indebtedness and the number of highly indebted households in a scenario of rapidly rising house prices”.

“The change in the affordability rules may not be as significant as it sounds as the loan-to-income ‘flow limit’ will not be withdrawn, which has much greater impact on people’s ability to borrow,” said Gemma Harle, managing director at Quilter Financial Planning.

The FCA’s Mortgage Conduct of Business responsible lending rules also require a wide assessment of affordability.

By Simon Read

Source: BBC

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Many first-time homebuyers lack mortgage knowledge

Many potential first-time homebuyers who are capable of paying deposits have no, or very little, knowledge about mortgages, new research from the Nottingham Building Society has revealed.

The Nottingham-commissioned survey showed that 15% of those who are planning to buy their first home admitted they know nothing about mortgages, while 31% stated they know very little about them.

When it comes to arranging a mortgage, 18% would only consider one from their main bank or building society. Nearly one in four (38%) said they will use a mortgage broker who can search the entire market, and 31% plan to use an adviser recommended to them by someone they know.

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Despite this, many first-time homebuyers do realise the importance of having a large deposit. Some 7% have set a target of securing a deposit of 30% or more, 21% want 20% or more, and 36% want a deposit of at least 10%. Just 13% are aiming for a deposit of 5%, and 23% are targeting between 5% and 10%.

Some 8% of would-be first-time buyers currently have £50,000 or more saved as a deposit, and 13% have between £20,000 and £50,000.

Iain Kirkpatrick, chief customer officer at Nottingham, said it is encouraging to see that many of those planning to buy their first home understand the importance of having a healthy deposit.

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“However, it is concerning to see so many admit they don’t know enough about mortgages generally, and how to find the best deal. Seeking independent advice from an expert adviser can be the key to understanding more and could also save thousands of pounds in repayments,” he said.

The Nottingham Building Society commissioned consumer research company Consumer Intelligence to interview 1,023 UK adults, of which 160 expect to buy their first homes within the next five years. They were interviewed online between February 18 and 21.

By Rommel Lontayao

Source: Mortgage Introducer

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Nationwide: Gross mortgage lending up £5.5bn

Gross mortgage lending grew by £5.5bn to £18.2bn in the six months between April and September 2021, up from £12.7bn in H1 2020, according to Nationwide Building Society.

However, its market share fell to 11.4% from 12% in H1 2020.

It lent over £5bn to first-time buyers, supported by its new Helping Hand mortgage and return to 95% loan-to-value (LTV) lending.

As well as this, its deposit market share rose to 9.6% up from 9.4% in April 2021 and current accounts grew to 8.7m up from 8.5m in April this year.

Underlying profit increased to £850m for the period ending 30 September, up from £305m in H1 2020.

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Statutory profit increased to £853m up from £361m in H1 2020, benefiting from a growth in net interest income to £1,706m, a net release of £34m of credit provisions and £133m increase in other income.

And net interest margins improved to 1.24% up from 1.15% in H1 2020.

Joe Garner, chief executive of Nationwide Building Society, said: “Early in the pandemic we made decisions to stand by our members and to protect our financial strength.

“This year we continued to support our members and have delivered a very strong half year performance, with capital reaching an all-time high. As a mutual, profits are retained to invest in the Society for the benefit of its members and wider society over the long
term.

“Over the last six months we have focused on providing highly competitive products for our mortgage and savings members. These have been very popular, resulting in a successful ISA season, increased deposits, higher mortgage lending, and a larger share of the current
account market.

“We continue to focus on providing the high-quality personal and digital service our members expect of us, and have led our peer group on satisfaction for over nine years.

“We have delivered value to members through our member prize draw, the restarting of our current account switching incentive and the launch of a scam checker service.

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“Our success is a testament to the strength of our mutual business model, to the hard work of our colleagues, and to the value we provide to our members.

“Given the level of uncertainty about the future, the strength of our finances gives us freedom to make choices, and confidence in continuing to support our members, colleagues and communities.”

Chris Rhodes, chief financial officer, Nationwide Building Society, added: “During the last six months, the Society has delivered strong performance across our three main product areas of mortgages, savings and current accounts.

“During the pandemic, strong demand for mortgages, coupled with macro-economic uncertainty, led to higher margins on mortgage lending. This resulted in significantly higher income, and a very strong overall financial performance.

“Net interest margin improved, but is unlikely to be sustained at this level in future due to intense competition in the mortgage market.

“We have continued to focus on efficiency and our costs remain flat despite further investment and growth of our business. While the improving economic outlook led us to release some of the credit provisions taken during the pandemic, there still remains
significant economic uncertainty.

“Our balance sheet strength, as evidenced by our very strong CET1 and UK leverage ratios, means we are well positioned for what remains an uncertain period ahead.”

By Jake Carter

Source: Mortgage Introducer

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Mortgage Affordability hits 2021 high in September

The average maximum loan size available is up by nearly 10% compared to the start of the year in September – representing a 2021 high, according to the latest analysis from Mortgage Broker Tools (MBT).

Analysis of real cases processed through the MBT research platform found that the maximum loan size available to an average customer was £254,821 in September, compared to £234,224 in January.

This increase was primarily driven by improved options for first-time buyers with the maximum loan size available such a buyer standing at £276,060 in September, up from £230,555 in January.

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Tanya Toumadj (pictured), CEO at Mortgage Broker Tools, said: “It’s a very competitive lender landscape at the moment and that means more options for borrowers. Cutting rates is one way for lenders to get an edge, but it’s not the only way and we’ve seen improved choice at higher LTVs and lenders making changes to their affordability calculators to become more competitive.

“At Mortgage Broker Tools, we’ve also seen the introduction of new ways for first-time buyers to enhance their affordability options, with results that show the benefits of combining an equity loan with a first charge mortgage, and this has certainly helped to boost the average loan size available to this group of customers.

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“The latest MBT Affordability Index shows that even though the maximum loan size available is at its highest point this year, a quarter of cases are still deemed to be unaffordable by lenders, so it’s really important that brokers carry out thorough research amongst as many providers as possible.

“Our residential panel, for example, features 44 lenders, which is nearly a third more than its nearest competitor. This difference in panel size makes a tangible difference to how much a client is able to borrow – in fact, we have calculated that by researching the additional lenders we offer, an average client would be able to borrow an extra £38,000. And this could be the difference in helping a client to achieve their objectives or letting them down.”

Source: Mortgage Introducer

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Majority of Property Transactions Since May 2020 Backed by Mortgages

Mortgages have fuelled 70% of property transactions across Great Britain since the market reopened back in May of last year, after initial lockdown restrictions were imposed, according to a research.

Enness analysed market data on mortgage-financed sales as a percentage of all sales in each area of Britain between May 2020 and November 2020.

While 270,785 of the 387,667 homes sold across Britain (70%) have seen the buyer backed by a mortgage, there is some regional difference. In London, 80% of all sales have come through homebuyers with a mortgage, with the East of England, West Midlands (72%), the South East and East Midlands (71%) also coming in higher than the national benchmark.

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In contrast, the South West is home to the most cash homebuyers with just 64% of homebuyers purchasing via a mortgage.

With the capital home to the largest regional percentage of mortgage-backed purchases, London also accounts for the top three highest at local authority level. Lewisham is the mortgage hotspot of Britain for homebuyers with 88% of all transactions financed via the sector, followed by Barking and Dagenham and Waltham Forest (87%).

Slough and Crawley are home to the highest percentage of mortgage-based purchases outside of London along with Hillingdon (86%).

At the other end of the spectrum, just 40% of property transactions in East Lindsey have been financed by a mortgage since the market reopened in May of last year. North Norfolk (43%), Argyll and Bute (44%), Torridge, Ceredigion (45%), Scarborough (48%), Rother, South Hams and Pembrokeshire also rank with some of the lowest levels of mortgage-financed transactions.

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“A lot has been made about the boost in buyer demand due to the stamp duty holiday, but it’s the continued low rates of borrowing that have really been the foundation of this heightened market activity.

While a stamp duty saving is nice, the ability to secure finance at a much lower rate of interest than historically possible has brought about a major boost to market sentiment in recent years and the impact is clear, with 70% of all transactions financed as such.

Some lenders have begun to tighten their lending criteria and this could make it harder for those with a less stable financial background to obtain a mortgage. However, it’s unlikely to impact the actual ratio of mortgage-financed buyers in relation to those purchasing with cash, particularly while the Bank of England keeps rates at sub-one per cent.”

BY PETE CARVILL

Source: Property Wire

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