Mortgage approvals surge by 21% in a year

12th September 2013

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The amount of mortgages agreed with UK homebuyers during July was more than 20% higher than a year ago and some experts are now predicting that property prices are set to soar by 7% in 2014 writes Philip Scott.

Trade association, the Council of Mortgage Lenders has reported that mortgage advances for house purchases amounted to 57,400 in July, up 8.9% from June and 21.1% higher than July 2012.

Mortgage advances to first-time buyers climbed to 25,300 over the month,  a massive 40.6% year-on-year rise and 4.4% over the month, while advances to existing home owners amounted to 32,000 which was up by 9.2% year-on-year and by 11.9% month-on-month.

Paul Smee, director general of the CML says: “For only the second time this year the monthly growth of movers exceeded the growth in first-time buyers. This is a positive sign of a mortgage market where obstacles to transactions are now reducing.”

The renewed vigour in the housing market is being bolstered by growing consumer confidence and higher job numbers – while the Government’s Funding for Lending and the Help to Buy initiatives are further boosting activity. The Funding for Lending Scheme is increasing mortgage availability and has helped to bring some mortgage interest rates down while the first stage of the Help to Buy initiative started on 1 April under which buyers can take out an equity loan from the government, which will enable them to put down a deposit of just 5% on a newly-built property.

The Bank of England’s indication that interest rates are unlikely to rise before mid-2016, is also encouraging greater confidence in people’s ability to purchase a house.

Howard Archer chief UK and European economist at consultancy IHS Global Insight says: “House prices look set to see solid increases over the final months of 2013 and during 2014. We expect house prices to rise by around 2-3% over the rest of 2013 and to then increase by 7% in 2014.”

According to the Halifax’s latest house price survey, property prices rose by 5.4% in the year to August, the highest annual rate since June 2010

Archer adds: “While an improving housing market is helpful to growth prospects, it is vitally important for stability and longer-term growth prospects that a new housing price bubble does not emerge.

“We are currently some way off any new housing bubble developing with activity still relatively limited compared to pre-crisis levels and prices on the Nationwide/Halifax measures some 8-15% below their peak 2007 levels (8% on the Nationwide measure, 15% on the Halifax measure). Nevertheless, with housing market activity currently gaining appreciable momentum and new stimulus measures due to kick in at the start of 2014, notably the ‘Help to Buy’ mortgage guarantee scheme, it is something that policymakers need to keep a very close eye on.

Archers urges that the Government needs to seriously consider limiting or even pulling the plug on the Help to Buy mortgage guarantee scheme “at the first sign of any housing price bubble developing”.

Yesterday the Business Secretary Vince Cable told Sky News that “we don’t want a new housing bubble” and that ministers should certainly think about how the Help to Buy should come into effect, indeed whether it should come into effect in the light of changing market conditions

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