Brian Murphy is head of lending at Mortgage Advice Bureau
Looking back at the first half of the year, it has been hard to predict how monthly mortgage market activity will play out.
At the start of 2012 many commentators were forecasting a flat market for the year, but MAB’s data from the first five months has defied this, finding year-on-year application figures have been consistently stronger to date.
That is not to say we’ve seen a smooth increase. After a couple of months of increases, in March activity levels spiked as first-time buyers brought their plans to buy forward in order to get their applications in before the end of the stamp Duty holiday.
Partly as a result of this, the dearth of applications from first-time buyers immediately after the deadline caused activity to dip in April (although it remained higher than the same time last year), before rising to their highest levels this year in May.
A number of other factors – such as the poor weather and the Easter break – have also had an impact on activity levels.
And looking forward to the second half of the year, the next few months are likely to see the impact caused by the effects of the Diamond Jubilee weekend and the London Olympics. Of course, alongside all this the ongoing Eurozone crisis has been putting a dampener on activity too.
Higher borrowing costs have caused lenders to reduce product numbers, tighten lending criteria, and to increase rates.
This has resulted in the cost of the average two-year fixed rate mortgages rising month on month since September 2011, with both three and five-year fixed rates rising since last December.
The average two-year fixed rate mortgage was 4.27% at the start of the year, but by May this had risen to 4.66% – the highest for more than two years.
Similarly, the average three-year fixed rate increased from 4.53% in January to 4.86% in May, and the average five-year fixed rate also increased to 4.86% from 4.61% in January.
An interesting trend worth keeping an eye on is remortgage activity. With a number of lenders also hiking their Standard Variable Rates in May there was an immediate uplift in the number of remortgage borrowers, and MAB’s National Mortgage Index found the amount of remortgage applications in May was 21% higher than the same time last year, with purchase business up 12%.
At the same time there was a drop in the average loan-to-value on remortgage applications. This would seem to indicate that a number of remortgage borrowers who are sitting on a significant amount of equity and have been happy to stick with their SVR deal until now are now entering the market in order to protect themselves from any further rises and to take advantage of what are still – by historic levels – very low rates.
Something else we will be monitoring closely is the Government’s latest initiative to stimulate lending to businesses and consumers. Announced by the Bank of England during the Mansion House speeches the ‘funding for lending’ initiative looks likely to feed through to mortgage lending.
A joint initiative from the Bank of England and the Treasury, it looks like there is plenty of weight behind it. Further detail is still needed before we can comment on the likely outcomes, but we hope this scheme helps to reverse the trend for tightening criteria and higher rates, and keeps activity levels moving in the right direction.