Sudden drop in mortgage deals on offer

Terraced houses
Image caption 2012 may see even less mortgage lending than last year

The number of mortgage deals on offer has fallen back suddenly, after rising steadily towards the end of last year.

The number of deals peaked at 2,757 in February, the highest monthly figure since 2007, said Moneyfacts.

They then dropped back to 2,325 and 2,288 in March and April respectively.

Moneyfacts suggested lenders may have been responding to some first-time buyers trying to complete deals before the expiry of their stamp duty holiday on homes worth up to £250,000.

This policy ended on 24 March, after the government declared that it had done little to help many first-timers buy a new home while the housing industry was still gripped by severe mortgage rationing.

Louise Holmes at Moneyfacts said: "The main reasons for the fluctuation in the number of higher loan-to-value (LTV) products will be due to the stamp duty holiday coming to an end and the introduction of the government's NewBuy scheme."

NewBuy is a scheme intended to help 100,000 people in England buy a newly built property.

The government and house builders are guaranteeing the top slice of any losses that lenders might face if borrowers default, thus enabling the participating lenders to offer loans with a smaller level of deposit than before.


Ray Boulger, of mortgage brokers John Charcol, suggested that the increase in the number of mortgage deals late last year may have been due to lenders looking for more profitable borrowers, who could be charged higher interest rates.

"There was a steady improvement in the number of higher LTV deals around, for 80%, 85% and 90% mortgages," he said.

"But some lenders, such as Santander, have now certainly reduced the number of products they offer."

The Moneyfacts figures show that nearly two-thirds of all deals on offer still require a downpayment from the borrower of 20% or more of the property's value.

More restrictions

The UK property market looks likely to continue stagnating in the coming year.

Last week the Bank of England's survey of lending intentions, for the first quarter of 2012, reported that banks expect to cut their mortgage lending in the next few months, despite expecting a rise in demand from would-be borrowers.

"Over the past three months, credit scoring criteria had been tightened and there had been a fall in the proportion of loan applications being approved,"the Bank said.

"This was the first time lenders had reported a fall in expected secured credit availability since [the second quarter of ] 2010, reflecting the tightening in wholesale funding conditions since mid-2011 and bank balance sheet pressures.

"Other factors such as changing risk appetite, market share objectives and expectations of house prices were also expected to pull down on credit availability," the Bank added.

In the past few months, lenders have severely restricted their lending on interest-only mortgages, ahead of the introduction of new rules by the Financial Services Authority (FSA), which are designed to restrict this sort of risky borrowing.

Meanwhile several lenders have announced plans to put up the interest rates on their standard variable rate (SVR) deals, citing the rising cost of financing these loans by borrowing in the wholesale financial markets.

The most recent lender to announce this was the Co-operative Bank on Monday, following similar moves by the Halifax, the Bank of Ireland, and the Clydesdale and Yorkshire banks.

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