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More mortgages lent
Mortgage lending was higher in September than it has been for more than a year.
Figures from the British Bankers' Association show that £17.8 billion was leant in September, six per cent higher than in August.
When repayments and redemptions were taken into account, net mortgage lending rose £4.9 billion, compared with £4.4 billion in August 2005 and in September 2004. This is the highest increase so far in 2005.
"September?s upturn in both gross and net mortgage lending possibly reflects a delay of the demand normally seen in the late summer, but there is also a stimulus from remortgaging," commented David Dooks, British Bankers' Association director of statistics.
"Two-year fixed rate loans taken during the buoyant period of 2003 are maturing around now and borrowers are seeking out new options," explained Mr Dooks.
Two years ago interest rates were at historic lows of 3.5 per cent, since then they have risen five times, adding £1,000 to the cost of an average mortgage.
But there was also an increase in the number of people taking out mortgage to move home.
Last month 17 per cent more loans were agreed for house purchases than in the same month the year before, with mortgages around 17 per cent larger than the year before.
By contrast, remortgaging loans were three per cent higher in number and 23 per cent higher by value, with equity withdrawal loans dropping 13 per cent by number and five per cent by value.
Figures from the British Bankers' Association show that £17.8 billion was leant in September, six per cent higher than in August.
When repayments and redemptions were taken into account, net mortgage lending rose £4.9 billion, compared with £4.4 billion in August 2005 and in September 2004. This is the highest increase so far in 2005.
"September?s upturn in both gross and net mortgage lending possibly reflects a delay of the demand normally seen in the late summer, but there is also a stimulus from remortgaging," commented David Dooks, British Bankers' Association director of statistics.
"Two-year fixed rate loans taken during the buoyant period of 2003 are maturing around now and borrowers are seeking out new options," explained Mr Dooks.
Two years ago interest rates were at historic lows of 3.5 per cent, since then they have risen five times, adding £1,000 to the cost of an average mortgage.
But there was also an increase in the number of people taking out mortgage to move home.
Last month 17 per cent more loans were agreed for house purchases than in the same month the year before, with mortgages around 17 per cent larger than the year before.
By contrast, remortgaging loans were three per cent higher in number and 23 per cent higher by value, with equity withdrawal loans dropping 13 per cent by number and five per cent by value.
posted by Bruce Wayne at 7:27 AM
More mortgages lent
6 Comments:
When the property bubble bursts people who are upside down on their home loans will find themselves in a very serious situation.
People are continuing to buy because lenders are now doing interest only loans on 100% of the purchase price. These people and lenders are banking on the house selling for more than they bought it when it comes time to sell, or that they will get a job that pays significantly more and be able to afford to refinance when the balloon payment comes due.
What we will see when it bursts is a large number of homes for low prices and a lot of people filing bankruptcy. We'll see the gov't asked to bail out the idiot lenders who created the issue by lending too much.
I think most markets will see the air slowly come out of the bubble as opposed to the bubble bursting. I think one obvious impact will be a strong decline in the number of houses switching hands. I'm glad I don't make my living as a realtor. I'm also very scared of the interest only loans cercis talked about. A 5% interest only to a 7.5% interest only means a 50% increase in mortgage payments and you're still not paying any principle!
I'm not in the market for a home right now. But I may very well be next year. We're heading to Dallas where prices are still very reasonable (suburbs of Dallas). I can't imagine I would put off buying a home because I thought there was a bubble - not b/c I think that you necessarily "throw money away" when you rent - but because I just can't imagine NOT buying a home as if I were waiting for a stock to go down or something...just my feelings though
Hopefully we buy at the bottom, it skyrockets up over 15 years, we sell and move to the country and retire, sipping lemonade in rockers on our (very large) porch.
Here's the best way I can break down the situation about the housing bubble (or any other asset bubble in general):
1) Are we in a bubble?
There are a couple of ways to look at this:
a) Historical
Look at the history of real estate bubbles and see if you see any common trends (the Florida Real Estate Craze being a common example). See why those people lost big money and see if those
same situations are being set up again. If you want to see some real craziness, look at the S&L scandals in the 80's and see what that did to housing prices (as well as the housing construction industry) in Texas.
b) Technical
Use any traditional measure for real estate investing. Are those measure out of line with historical averages? Look at average monthly payments, renting cost vs. owning cost history, interest rates, maximum mortagages allowed, etc. A lot of those measures are significantly out of line.
2) If this is a bubble, why hasn't it popped yet?
Okay, we just lived through a stock market bubble. Can you explain why it popped? Even looking backwards, can you explain how and why it happened? I certainly can't. I can say something like "All these dotcoms aren't making money, so they'll go under when they run out of cash". But I certainly couldn't predict when they would be unable to issue stock or take venture capital (i.e. when they could no longer
get "free" money to continue operations).
Even some of the brightest brains applying complicated mathematical models can't detect a bubble with absolute certainty.
http://ideas.repec.org/p/fip/fedgfe/2005-04.html
Look at any graph from any bubble period (dotcom bubble, Japan Nikkei
index, RCA stock in 1929). Now, use a piece of paper to cover up the graph before the peak. Move that piece of paper left and right.
Can you tell when the peak will occur?
2) Let's assume we're in a bubble, what should I do?
Unlike stocks and tulips, housing cannot be sold easily for a quick
profit (once you take into account the lender/seller/mortgage fees).
a) How do I take advantage of this?
This article does the best overall presentation of why you might want to sell:
http://money.cnn.com/2005/07/22/pf/cash_out_0508/
As you can see, it's not easy to safely make money out of a real
estate bubble without some sacrifices (moving or downsizing).
b) How long do I need to wait?
While stocks and other easy-to-sell assets have crashed quickly
and been over with, real estate is a bit trickier. Japan's real estate boom took about 15-18 years. It's bust has been 15 years and counting. Waiting 30 years is great if you plan on living 1000 years, but not so great for the rest of us.
There are a lot of reasons for housing to crash: foreclosures,
rising interest rates, panicked sellers. But again, detecting the end of the bubble is hard.
c) So, when should I buy?
Buy when you can absolutely afford it (e.g. fixed rate mortage that takes up 25-35% of your income). Buy when you can put down a good down payment. Buy when the thought of this house dropping another 10-20% in price doesn't bother you because you've got a home.
For investing, buy when you can afford to take over the monthly
payments for as long as it takes you to find a new renter. More than that and those monthly payments might start to hurt.
In the meantime, continuing to save will get you towards that goal.
I know this is a long comment, but I hope it was worth the reading.
How can I get onto the propery ladder? I currently earn £13k per year (plus 3k bonus) and have been offered a mortgage of £31k (if I have a 5% deposit). Yet the cheapest houses in Liverpool go for around £60k, with a small 3 bedroom house in a decent area more towards £125k. I've just checked my credit report free on LiverpoolCredit.com and it says that I have an average credit file.
How do you people afford a mortgage on a low income? It looks like I'll have to get married first before I can own my own home.
Anon - Most lenders these days will consider 4 times sole income and most would take at least half of your bonus if it's regular, all if it's guaranteed. That gives you a mortgage amount of £58,000 (regular bonus) or £64,000 (guaranteed bonus) Any commitments you have (loans, credit cards etc) will be taken into consideration and the advance reduced though.
However, due to mortgage regulation, it's not just based on income multiples - there is an affordability calculator that you must also fit.
As one poster has already mentioned, the most affordable way for you to probably get on the property ladder is a shared ownership or shared equity scheme.
As for a housing crash, don't bet on it. The market has picked up for the third month running according to Halifax's research and I can tell you, working in a mortgage brokerage, that most lenders have backlogs due to work volumes - they're withdrawing good rates to try and stem the tide - with some, I'm talking weeks.
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