Lending up 7% in October

Latest CML data has revealed that gross mortgage lending totalled an estimated £18.7 billion in October, almost 7% higher than September’s £17.5 billion figure.

The monthly total was 44% lower than gross mortgage lending of £33.4 billion in October 2007.

CML director general Michael Coogan said: “While lending in October ticked up from a low figure in the preceding month, the outlook is one of continuing weakness for housing and mortgage markets in the coming months, despite the Bank rate cuts in October and November.

“Consumer confidence is now being affected by the worsening economic outlook. However, any recovery in lending is also being held back by the continuing shortage of mortgage funding. The government should therefore publish the delayed Crosby review as part of the forthcoming pre-Budget report and announce concrete steps that will enable and encourage firms to increase mortgage loans.”

Alliance & Leicester unveils new tracker and fixed rate

Alliance & Leicester is re-entering the tracker market with the launch of a two-year product at 4.89%, as well as bringing out a new two year fixed rate at 4.49%.

The new offers will be available from Friday via brokers, Alliance & Leicester branches and by telephone from Mortgage Direct.

Richard Taylor, head of mortgage products at Alliance & Leicester, said: “We have enhanced our current range of mortgages by reintroducing a two year tracker product into the portfolio and a new two year fixed rate. They are very competitive products offering customers the choice of setting their monthly payments or tracking the Bank of England base rate.”

AMI paints a bleak remortgage picture

Remortgage business could diminish further in 2009 as borrowers are forced to stay on their lenders’ SVRs until LTVs come down, the Association of Mortgage Intermediaries warns.

AMI’s latest Quarterly economic bulletin says brokers may find borrowers impossible to place with lenders until LTVs come down.

It says: “This means less business for brokers who will find these borrowers untouchable by other lenders until they are out of negative equity.”

AMI says that although the multibillion pound government recapitalisation and bank nationalisation plans were necessary, they won’t be sufficient to allow borrowing between banks and lending to corporate and retail customers to begin again.

More worryingly, it says that demand for credit has now ebbed away so the prospect of improved supply is immaterial.

It has also scrapped its previous predictions of £55bn of net lending in 2008 and reduced it to between £38bn and £43bn.

The International Monetary Fund echoes AMI’s outlook and warns that the UK faces its most severe economic downturn since the recession in the early 1990s.

In its latest biannual World economic outlook report, the IMF predicts the UK will be the worst hit of the world’s leading economies due to ongoing financial turmoil and falling house prices.

70% of first time buyers still using brokers

The latest data from the Council of Mortgage Lenders shows that 70% of first-time buyers are still choosing to use a broker.

In Q3 2008 some £3.9bn worth of mortgages were carried out via brokers which represented 71% of the total amount lent to first-time buyers.

The value of loans completed is down by almost two-thirds year-on-year. In Q3 2007 some £9.7bn worth of mortgages were completed.

That said, brokers are maintaining their market share – in Q3 2007 this represented 74% of the total first-time buyer market.

For the home mover market, in Q3 2008 brokers originated £7.5bn in value and £18.4bn in the remortgage market. For both sectors this represented a 60% market share.

But the CML’s figures show the total number of loans completed in September 2008 is down by another 5,000.

From August to September, the number of mortgages completed fell from 26,200 to 21,500. Year-on-year this represented a fall of 59%, from the 52,200 completed in September 2007.

The typical home mover now borrows 71% of the property’s value and 2.82 x their salary, compared with 72% and 3.02 a year ago.

First-time buyers in September borrowed an average of £104,500, down from £108,000 in August. The amount borrowed has been steadily declining since peaking at £119,250 in July 2007.

This has brought the average first-time buyer income multiple down to 3.18, its lowest level since March 2006.

First-time buyers have been continuing to put down larger deposits (16% in September) and fewer of them are entering the market – only 13,400 in September, down from 28,200 in September 2007.

The temporary increase in the Stamp Duty threshold saw 51% of homebuyers avoiding Stamp Duty in September, compared with 22% in September last year.

Michael Coogan, director general of the CML, says: “While house purchase activity has reached exceptionally low levels, it is encouraging to see transaction costs lowered for a larger proportion of borrowers.

“The government should consider what other measures can be brought forward to enable the market to transact more easily.

“Banks and building societies do want to support homeowners, but they have limited funds available and are, quite reasonably, taking a prudent approach to risk.

“If the pricing and volume of interbank lending continues to improve, this should help the flow of mortgage lending.”

Three-month LIBOR falls 1%

Three-month LIBOR has fallen by over 1% to 4.49% on the back of the Bank of England’s decision to reduce the interest rate to 3% yesterday.

On Monday three-month LIBOR was set at 5.77% and on Thursday it was set at 5.56%. Sterling LIBOR is set by the British Bankers’ Association at noon from Monday to Friday and is based on rates being offered by 16 contributing institutions.

Many in the industry were concerned that unless interbank funding rates headed the same way as the base rate, it would do little to alleviate borrowing costs.

But the Bank of England Monetary Policy Committee’s decision to reduce rates 1.5% has clearly had an impact.

Jonathan Cornell, managing director of Hamptons Mortgages, says: “It definitely should make a difference. LIBOR is still around 1.5% over base and with three month LIBOR at this level gives lenders decent scope to price up tracker rates.

“But it’s a big fall and borrowers will benefit from lower rates in the coming month.

“Lenders realise if they stop lending totally and price themselves out of the market losses and repossessions will be higher.

“The quicker they roll up their sleeves and start lending sensibly the quicker the market will recover.”

Base rate cuts prompt fixed rate exodus

Fixed rate mortgages have seen their popularity fall significantly since the Bank of England’s shock rate cut last month, new research suggests. Borrowers are increasingly moving to tracker mortgages, hoping to make savings in the future as interest rates fall, according to Spicerhaart Financial Services.

Spicerhaart’s latest mortgage survey also found first time buyers are beginning to re-enter the market as house prices have fallen.

With the Bank of England hotly tipped to make a further cut in base rates tomorrow, and with further cuts on the horizon, borrowers are looking to benefit by switching to a tracker mortgage.

Spicerhaart’s survey suggests the number of homeowners opting for tracker mortgages increased by 12.5% during October.

Fixed rates declined in popularity, down 11%, as borrowers hope interest rates will continue to fall as the Bank of England attempts to combat the economic downturn.

Steve Cox, operations director at Spicerhaart, says: “There has been a rush of borrowers to secure the remaining competitive trackers available. If the base rate is cut again on Thursday, which is very likely, these borrowers will reap the rewards.”

However, Cox says borrowers should quickly move to snap-up existing tracker deals, and many lenders have raised tracker rates for new borrowers following the Bank of England’s cuts.

Today, Abbey confirmed it would be raising rates on all tracker products by 0.5% as it anticipates a half-point reduction in base rates tomorrow.

Spicerhaart also found first time buyers are taking tentative steps into the housing market again as falling house prices improve affordability.

Over the past four months, the number of first time buyers earning less than £40,000 has increased by 16%.

Spicerhaart says the bottom end of the market has become particularly affordable, helping first time homeowners step onto the housing ladder.

Bank of England savings not passed on by 80% of lenders

Eight in ten mortgage lenders have failed to pass on the full benefit of the last three interest rate cuts to their customers, according to Moneyfacts. The news comes as HSBC announced it is unlikely to pass on any savings from the Bank of England’s expected base rate cut on Thursday.

Research by Moneyfacts found half of all lenders had not altered their standard variable rate (SVR) since the Monetary Policy Committee (MPC) made its surprise 0.5% rate cut in early October.

Furthermore, 82% have not helped their borrowers by passing on the full savings of the last three base rate cuts, equivalent to 1%.

Darren Cook, mortgage expert at Moneyfacts, says this may not be as bad as it seems, as many lenders have relatively low priced SVRs compared with their fixed rate offerings.

“In real terms, most lenders’ current SVRs are underpriced compared to the rest of the mortgage market,” he says, adding some current products have a revert rate lower than the initial rate.

“Base rate is expected to fall again next week and we could have a situation where even less or no lenders choose to pass on a benefit to their customers, in an attempt, in the short term, to allow falling interbank rates to catch up with their current rates.”

Evidence the next round of base rate cuts may have little benefit for mortgage lenders is already emerging, with HSBC saying it may not pass on any further base rate cuts to its mortgage customers.

Analysts are widely expecting decisive action from the MPC on Thursday, with a 0.5% cut seen as the most likely move in an attempt to improve consumer confidence and dampen the impact of a recession.

Global chaos as Congress rejects bail-out

London and European markets are in freefall upon opening this morning, continuing a chaotic 12 hours for global indices following the rejection of the US $700bn bank bail-out package.

At 8.30am, the FTSE100 had already plunged 144.95 points, or 3%, to 4673.82. HBOS, RBS and Lloyds TSB are among the hardest hit.

Paris’ CAC is down 2.57% to 3851.68, while Frankfurt’s Dax is 2.4% lower to 5667.86.

It follows the largest ever points fall for the Dow Jones on Monday, which plummeted 777.68 points, or 6.98%, to 10,365.45. The broader S&P 500 fell 8.81%, while the tech-heavy Nasdaq dived 9.14%.

Asian stocks continued the decline on Tuesday, with Japan’s Nikkei 4.12% lower and Sydney’s S&P500 down 4.3%.

While US markets were already suffering a sharp decline in early Monday trading, news Congress rejected the bail-out sent shockwaves through Wall Street.

The bail-out vote was defeated in the house 228 to 205, with just 65 Republicans supporting the bill and 133 turning against party leader President Bush. Democrats backed the bill 140 to 95.

It is now expected US Treasury Secretary Hank Paulson will reconvene with party leaders to quickly thrash out a deal to take back to Congress as early as Thursday.

“I’m disappointed in today’s vote, but leaders on both sides of the aisle worked hard. I’ve spoken to them and I know they share my great disappointment,” Paulson says.

“Our tool kit is substantial but insufficient. We’ve got much work to do. This is much too important to simply let fail.”

Mortgage lending plummets

According to the latest Bank of England data, new mortgage lending to individuals in August 2008 fell to £143 million, just 5% of net lending in July.

The 12-month growth rate slowed further, to 6.2%, and the three-month annualised growth rate fell by 1.0 percentage points to 2.6%.

Within the total, the increase in net lending secured on dwellings (£0.1 billion) was below the increase in July and the previous six-month average.

The 12-month growth rate slowed further, to 6.0%. The three-month annualised growth rate fell by 1.2 percentage points to 1.9%. The numbers of loans approved for house purchase (32,000), remortgaging (64,000) and for other purposes (39,000) were all lower than in July.

Ross Bowen, managing director of Connells Survey & Valuation, said: “While these figures were expected, the latest and unprecedented merger and takeover news in the financial sector, is doing little to restore confidence to the markets. LIBOR is back up, and lenders will have to reflect this in the rates they’re offering borrowers. At a time when banks have continuing lending constraints, the number of people seeking to secure affordable mortgages will come under more pressure.

“The government’s intervention with Bradford & Bingley shows they have learnt from some of their previous mistakes, but it does not solve the lack of liquidity in the mortgage markets. The clock is ticking and we eagerly await Sir James Crosby’s report and recommendations on the mortgage market. The government, Bank of England and FSA must act now to help lenders and borrowers and play their pivotal role in rebuilding confidence.”

Mortgage lending slides 12% in August

Gross mortgage lending continued to fall in August and has reached its lowest figure in more than three years. The amount of money lent for mortgages has fallen by more than a third in the past year, with the trend expected to continue.

The Council of Mortgage Lenders’ (CML) latest figures show gross lending in August was £21.8bn, down 12% from £24.7bn in July and 36% lower than in August 2007.

Last month had the lowest lending figure since April 2005, and was the slowest August since 2002.

Michael Coogan, director general of the CML, says low turnover in the housing market and low remortgage activity suggest lending figures will continue to be low in the near future.

“These figures reflect the heightened uncertainty for both lenders and consumers in the mortgage market at present,” he says.

“Lenders are uncertain about future sources of funding and the cost of funding, while consumers are unsure about how much further and for how long house prices will continue to decline.”