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Research 11 February 2015

Chrome February 2015 - Mortgage market

Key mortgage rates ended 2014 at their lowest level in 20 years.

Nick Barnes, Head of Research

Stormy Cloudy Settled Fair Fine

Latest available data from the Council of Mortgage lenders reveals that gross mortgage lending in 2014 was 16.9% higher than in 2013 and the highest annual total recorded since 2008. However, lending in the final quarter of the year dropped by 8% compared to Q3.

Key mortgage rates ended 2014 at their lowest level in 20 years. According to Bank of England data, the average two-year fixed mortgage rate fell to 2.08% in December, down from 2.4% a year earlier. Growing competition among lenders is largely due to the expectation that interest rates will not rise soon, and is reflected in recent products launched by banks including the lowest ever five-year and 10-year fixed-rate loans.

According to the British Bankers' Association (BBA), the average mortgage loan for house purchase in December was £162,600.

The regulators continue to tighten the rules for lenders. Banks face further stress tests from 2016 in the form of simulated shocks – approved by regulators – which will be tailored to their businesses. The announcement came as the Government confirmed new powers for the Bank of England's Financial Policy Committee over housing markets. These will include the ability to limit the ratio of debt to income and the percentage of loan-to-house value at which banks are able to lend to borrowers.

Latest affordability analysis from the Halifax shows that national affordability in Q4 2014 continued to deteriorate with mortgage repayments accounting for 29.6% of the average single male full time income compared to 27.3% in Q4 2013. In London, affordability worsened more dramatically, rising from 38.6% in Q4 2013 to 44.6% in Q4 2014.

The Bank of England reports that demand for secured lending for house purchase fell significantly in Q4 compared with lenders' expectations of a rise. The net percentage demand balance was the lowest since 2008 Q3. A significant fall in demand was also reported for prime lending and buy-to-let lending.

NB comment: although record low interest rates mean that it is currently one of the best times in recent history to lock into a fixed-rate mortgage loan – especially as lending criteria will be further tightened next year – mortgage lending has slowed in recent months. The Election is partly responsible, however, finding sufficient funds for a deposit and in some cases a hefty mortgage arrangement fee on top of other associated purchase costs is still beyond the means of many.

Download Chestertons Residential Observer - February 2015