Mortgage market returning to normal

The Intermediary Mortgage Lenders’ Association (IMLA), which represents the views and interests of UK lending institutions involved in the mortgage business, believes that the fundamentals of the UK mortgage market are sound and that conditions are now returning to normal.

The reassurance comes after recent events in both the mortgage and financial markets seriously affected confidence among lenders and homeowners.

Peter Williams, executive director of IMLA, points out that: “The turmoil in the financial and mortgage markets was attributable not to an actual problem with the credit quality of UK mortgage books, but concerns among investors that UK lenders could encounter the same problems as have occurred in the US.

According to Mr Williams, “that ignored the fact that the credit quality of UK mortgages remains very good.”

The statement also acknowledges that there have been “some excesses at the fringes of the market” but that “across the board arrears and possessions remain very low”.

Recent data from the Council of Mortgage Lenders (CML) show that 1.06% of UK mortgages are more than 3 months in arrears and whilst the figure may increase in the coming months the Council does not expect a return to the level of arrears and repossessions of the 1990s.

Although house price inflation is falling and is expected to continue to do so during 2008, housing demand continues to exceed supply.

Other stablising factors include a high level of job security and a reduction in the London InterBank Offered Rate, the interest rate applied to many sub-prime mortgage products.

According to IMLA, investors with concerns over the US sub-prime crisis have steered clear of UK mortgage-backed securities as a precautionary measure but this phase is now “passed the turning point” and there is “renewed appetite from investors who recognise the low risk nature of UK mortgage-backed assets”.

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