Confidence Fuels The Market

Meanwhile figures compiled by LSL Property Services’ First Time Buyer Monitor showed 26,100 first-time buyers took out loans in July, the highest number for six years and a 45% rise on the same month last year.

Mortgages are much more affordable for first-time buyers compared to last year, which has opened the door to thousands of would-be buyers who were shut out of the market. Economic confidence is returning, pushing many more buyers in the direction of property, and persuading lenders to offer more loans to buyers with smaller deposits.

The recovery in the property market has also eroded negative equity, giving banks greater confidence to lend. Another recent survey shows the value of bad mortgages, where borrowers were unable to keep up with repayments, has fallen 40% since the peak of the financial crisis in 2009.

Accountants UHY Hacker Young, which analysed Bank of England data, found the value of mortgages written off for the year to March was £543m, compared with a peak of £902m five years ago. This improvement in the market has meant more homeowners struggling with their mortgages have been able to sell up without having to worry about negative equity. In cases where the worst has happened and homes have been repossessed, an improvement in the housing market means banks are able to achieve better prices on repossessions sales.

The Government’s efforts to support the property market include last year’s Funding for Lending scheme, which made £80 billion available to banks for loans, the vast majority of which has gone to mortgage lending. In April ministers launched the Help to Buy scheme, lending 20% of a new-build property’s price, interest-free for five years, for those with only a five per cent deposit. The scheme will be widened beyond new-build properties in January and will also be available to people moving up the property ladder.

There are, however, critics of the scheme, including the International Monetary Fund, which has warned it could create a new house price bubble.

Buyers have also been warned not to over-stretch themselves, as house prices remain high against average wages and interest rates will eventually rise. New borrowers need to ensure that they can afford interest rate rises as current low interest rates won’t be around forever. It is important that the new optimism about the housing market doesn’t lead to a return to the reckless lending of the past.

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