Arthur takes a look at the changing face of mortgage applications and whether or not the increase in loans is actually as good as it seems.
Whilst mortgages are not the most fun topic of conversation, they are a linchpin of the property market and for most of society are the only way they will ever be able to get on the ‘property ladder’. Since the 2008 financial crisis, mortgage applications and their success rate have been a good indication of how healthy the sector is, and what trends we can expect in the near future. More recently, an unwillingness to loan by banks has worsened the ‘generation rent’ crisis. Therefore, recent statistics from BDRC Continental should be very welcome indeed.
The research found that 69% of mortgage applications moved through to completion in the first quarter of 2017, a 19% increase on the previous quarter. Whilst the final quarter of the year can often be slightly slower that the rest, this is still a significant increase. Furthermore, BDRC’s research found that 67% of first-time buyers that applied were also successful in their endeavours.
Several factors have helped this increase. The first is a new willingness by lenders to offer a 95% mortgage to people, therefore lowering the threshold of whom can apply. The second is low mortgage interest rates that makes applications far more attractive to possible loanee’s. However, both of these also have drawbacks. Those low mortgage rates that entice people to apply, are slowly creeping up and will soon not be able to be classed as ‘low’. Furthermore, one issue you do not have to worry about when renting is depreciating house value.
Whilst high lending rates are good on the surface, they may also lead to a depreciation in house value as more people are able to get on the property ladder. Whilst the good news is that more people will be able to own their own home, the bad news is that many may end up paying far more than their property is worth as the market value decreases. This is especially the case in high-cost markets such as London.
In slightly brighter news, intermediary mortgages look set to continue their increasing success rates. In the first quarter of 2017, the application success rate increased by 11% to take it to the highest level it has been at since it began to be tracked in 2016. The buy-to-let mortgage market should also see a further boost as Metro Bank recently invested heavily in it, acquiring nearly £600m worth of mortages from a private equity fund.
Rising lending rates are good, however they must be managed properly to ensure nothing disastrous happens.