Mortgage approvals rise as rates continue to fall

http://www.theguardian.com/money/2015/mar/30/mortgage-approvals-rise-rates-fall

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The number of mortgages take out for house purchases and remortgages increased in February, figures from the Bank of England showed, as rates continued to fall and lenders got to grips with affordability rules.

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The average cost of a two-year fixed-rate mortgage for a borrower with a 25% deposit fell below 2% for the first time ever, the Bank’s data showed, while five-year fixed-rates edged close to 3%.

Mortgage brokers said fierce competition between lenders was increasing the options for borrowers, as well as pushing interest rates down to record lows.

During February, 61,760 mortgages were approved for house purchases, compared to an average of 60,750 over the previous six months, the Bank said. There was also an increase in mortgage activity, with 32,099 borrowers switching to new lenders, against the previous six-month average of 31,687.

The seasonally adjusted figures showed that while the total value of house purchase loans dropped – from £10.7bn in January to £10.2bn in February – the value of remortgages went up from £5.1bn to £5.3bn.

Although the Bank base rate remains at 0.5%, the receding likelihood of an interest rate rise in 2015 has a sparked a mortgage price war between banks and building societies which has been driving the cost of home loans down since the summer.

The average cost of a two-year fixed-rate mortgage at 75% loan-to-value fell to 1.96% in February, the Bank said, while a five-year fixed-rate at the same level came down to 3.05%.

Borrowers taking out mortgages with smaller deposits have also seen price cuts in recent months, with the average rate for a 95% home loan falling to 4.67% in February, although at 90% LTV the average rate edged up slightly to 3.77%.

Brian Murphy, head of lending at brokers the Mortgage Advice Bureau, said the data showed that momentum was returning to the mortgage market.

“The combination of low inflation, moderating house price growth and a delay in the base rate rise seems to be working in consumers’ favour,” he said.

“Fierce competition between lenders is also a significant factor behind the rise in approvals. The emergence of more specialist lenders to compete with the high street brands means that, even with rigorous affordability checks in place, customers have more options than ever to explore getting a loan.”

In mid-March some lenders, including Nationwide, pulled some of the best-buy mortgages as swap rates started to increase. However, recent weeks have seen a flurry of price cuts. Borrowers who want to lock in to a rate for two years can do so at less than 1.25% if they have a deposit of at least 35%, while five-year fixes are available at less than 2.25%.

Early signs that banks are seeking to raise mortgage availability are likely to continue

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “While swap rates ticked up in past weeks, they have since fallen and with lots of capacity in the market as lenders such as HSBC and Tesco look to boost their offering via brokers, mortgage rates are likely to remain extremely competitive in the months to come.”

Affordability rules which came into force in April 2014 caused a slowdown in lending as banks and building societies retrained staff and adapted to the new system.

Matthew Pointon, property economist at Capital Economics, said he expected the increase in lending to continue. “The regulations are now bedding in and the 2015 stress test, details of which were also released this morning, include a less severe 20% drop in house prices [than previously],” he said. “Early signs that banks are seeking to raise mortgage availability are therefore likely to continue.”

Pointon said that lending had not picked up as much as expected this year, given high levels of employment and low interest rates.

“A key reason for the subdued level of lending is a shortage of homes for sale,” he said. “But as greater confidence in the economy encourages more households to move, that should help activity levels and mortgage lending to rise further over the coming months.”