Outlook for mortgage market uncertain

| November 14, 2011
Outlook for mortgage market uncertain

Although the mortgage market is currently stable, the outlook remains uncertain in the face of the eurozone crisis.

The Council of Mortgage Lenders (CML) has reported that 48,200 mortgages were taken out to buy homes in September, two per cent less than in the previous month.

However there was a 3 per cent improvement in the number of mortgages approved for house purchases during September compared with a year ago.

The number of loans to first-time buyers increased by 5 per cent to 18,200 from September 2010 to September 2011 and first-time buyers also benefited from lower deposits.

The average deposit first-time buyers needed to put down was 20% of their home’s value, compared with 24 per cent in September 2010.

The figures show that demand for remortgaging increased during September, although just 34,200 loans were advanced, slightly less than in the previous month.

While the figures show an improved picture for first-time buyers the eurozone crisis could make lenders more cautious going forward, especially with this group of borrowers.

The crisis has also caused Libor – the rate banks charge to lend to each other – to rise, with mortgage lenders reporting that the cost of loans is starting to increase as a result.

A new report from Savills suggests that house prices could fall by as much as 11 per cent by 2016, taking account of inflation.

While low interest rates are expected to keep the number of repossessions down and stop prices crashing, the company expects prices to fall in the face of the turbulent economy and difficulties is securing mortgage finance.

In 2007, the average price of a house was £184,000 compared with the current average of £161,000.

Savills expect the average house price to rise to £170,000 by 2016, representing an 11 per cent fall when inflation is taken into account.

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