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Research 12 August 2015

Mortgage Market July 2015

Is the Bank of England playing mind games regarding interest rates and when they might rise?

Nick Barnes, Head of Research
  • Gross mortgage lending in June (not seasonally adjusted) showed a significant rise compared to the previous month, according to the Council of Mortgage Lenders. It rose by 29% compared to May to an estimated £20.5 billion. In addition to the month-on-month rise, there was also a year-on-year increase of 15% in lending in June 2014.
  • Data from the British Bankers' Association (BBA) indicate the average value of loans for house purchase rose to £169,900 in May, 1.1% higher than in April, 3.9% higher than in May 2014 and 7.5% higher than the pre-global recession peak figure.
  • Equity release lending rose by 17%in the first six months of 2015, according to data from equity release provider Key Retirement. Retired homeowners cashed in £753m from their properties during the period, up from £641m in the first half of 2014 and the total number of equity release plans sold also increased year-on-year, from 10,013 to 11,007. Mortgage debt is emerging as a "major issue" with 23% of Key Retirement customers using equity release to pay off home loans.
  • The Bank of England (BoE) is to look at tools that could be used to regulate buy-to-let (BTL) mortgage lending, ahead of a government review into whether to give the BoE formal powers over the sector. BTL mortgage lending is currently unregulated, however Mark Carney recently expressed concerned that the rapid growth of lending to the sector this year posed a potential threat to the country's financial stability.
  • Interest rates could rise as early as the turn of the year, according to Bank of England Governor Mark Carney. However, increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historical averages (4.5%). Three major factors would be considered when deciding when and how to raise Bank Rate: the pace of economic activity, household debt and core inflation. However, shocks to the economy could easily adjust the timing and magnitude of any increases.
  • Meanwhile, The Bank of England's quarterly Credit Conditions Review shows lenders expect a "slight" reduction in prime residential rates and a "significant" reduction in buy-to-let rates in Q3.