2011 mortgage market round-up

The mortgage market has shown some promising signs of activity in the first two months of 2011, with remortgaging making a comeback.

Speculation of an imminent rise in interest rates – and a subsequent rise in the cost of fixed rate mortgages – has led thousands of borrowers to grab a fixed rate deal that will protect them against future rate hikes. Last week the Bank of England released its latest lending figures that show approvals for remortgaging increasing in January to 33,498 – 10% higher than the previous six-month average.

 Similar figures from the British Bankers Association (covering the main high-street mortgage lenders) showed that remortgage approvals in January were 5% higher than the previous month and 28% higher than in January 2010.

The trend continued into February and at L&C we saw a 10% increase in remortgage applications compared to January. 

For those people switching to a new deal, it’s no surprise that fixed rates are proving popular at the moment – around three-quarters of L&C customers this year have opted for a fixed rate and we expect their popularity to continue.

House Prices

Nationwide and Halifax released conflicting house price figures again in February – Nationwide reporting a 0.3% rise and Halifax a 0.9% decline.  Although monthly figures remain volatile, the overall picture is of a market that is still fairly stagnant will low levels of transactions. 

Halifax said that the fall in February effectively cancelled out the 0.8% rise it reported in January and both lenders predict little movement over the rest of the year.  Halifax is predicting a modest 2% fall in house prices in 2011.

Although mortgage lenders have seen a rise in remortgage business in recent weeks, mortgage activity overall remains low compared with pre-credit crunch levels.  With people’s concerns about rising food and fuel prices and looming job cuts, both customers and mortgage lenders are likely to remain in a cautious mood for the next few months.

First Time Buyers

First time buyers will be key to any resurgence in the housing market – and in particular their ability to get a mortgage, but conditions are still tough and finding a decent deposit remains a struggle for many.  Mortgage options are improving slowly in this respect – Northern Rock for example has recently launched new deals available for those with a deposit of just 10% - and at L&C the last two months have seen a steady rise in the number of mortgage applications from first time buyers. 

But while a slowly growing choice of mortgage deals is a step in the right direction, we’ll need more fundamental improvements in the economy before we see a real pick-up in the number of first time buyers entering the market.

Meanwhile, the outcome for the Bank of England Base Rate will be key for those borrowers considering a remortgage in the coming months.  When we do see a rate rise, borrowers paying their lender’s Standard Variable Rate should keep a close eye on how their rate changes and make sure they’re not paying more than they need to.  If you’re considering a fixed rate, then keep a close eye on the cost of these too – remember that you can apply for a new mortgage a few months before your current one expires so you can secure a good deal in advance.

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