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Lending increase not enough to boost property market

According to the Bank of England the number of mortgages approved during July rose to its highest level since April 2008 and represented the sixth consecutive month that approvals rose. They increased to 50,123 in July compared with 47,891 the previous month.

And figures from the British Bankers’ Association show that approvals in July were 38,181, an increase of 7.4% compared with June and 77% higher than the same time the previous year.

It said the figures are at their highest level since February 2008.
But at the same time experts point out that there is still not enough lending to boost the property market and choice for the consumer has been considerably eroded.

Also Moody’s is warning that arrears on mortgages in the UK are likely to increase.

It reports that the number of prime borrowers in three-month arrears has continued to rise and arrears of more than 90 days on prime residential mortgage-backed securities have doubled from the level recorded by its index last year.

Although it also reports that repossessions have eased off slightly from last year’s levels, it points out that loans from Northern Rock and Bank of Scotland, banks that had to be bailed out by the UK government, are particularly poor performing.

The dearth of the remortgage market, together with the rise in unemployment, means that prime borrowers will find it increasingly difficult to meet their mortgage payments, the Moody’s report says.
'Before the economic downturn borrowers were able to refinance their way out of arrears problems or sell their property. The combination of increasing unemployment and lack of financing options if borrowers are experiencing mortgage problems has led to worsening performance,’ said Daron Kularatnam, senior associate at Moody’s and co-author of the report.

Others point out that mortgage lenders are showing continuing reluctance to reduce the cost of fixed rate mortgages.

During the last month, only a couple of lenders reduced selected rates, including Cheltenham and Gloucester and Nationwide Building Society.

However, other lenders such as Barnsley Building Society, Chelsea Building Society and The Post Office all increased rates, according to

‘Borrowers looking for a new mortgage deal are continuing to pay a heavy price for previous mistakes made by lenders.

 Margins continue to be increased as lenders look to repair dented balance sheets. Normal rules where lenders pass or decrease rates based on the cost of funding seem to have well and truly gone out of the window.

Lenders have always been quicker to pass on increases rather than decreases, but many seem to be reluctant to pass on any decrease in the current climate,’ said a spokesman.