Are Mortgage Approvals really Decreasing? Right now it seems as though no-one can really agree on what the government, Bank of England or Financial Conduct Authority (FCA) should do to prevent another housing bubble. With the economy starting to improve and the government creating new schemes such as Help to Buy, the UK property market has been booming over the past six months. However, a number of industry experts are concerned that the market is unsustainable and could even return to the state it was in during the recession if current trends continue. All this would suggest that the government are working towards fewer mortgages being approved, but is this really the case?
The FCA and Bank of England’s Measures
With the economy improving and unemployment figures down most people are expecting the Bank of England to increase their interest rates. However, the Bank is being cautious when it comes to interest rates as the cost of living is still high and wages are not yet at pre-recession levels. Therefore, if they do increase their interest rates a large percentage of the country could struggle to afford their mortgage repayments.
This is why instead, the Bank of England has announced that lenders should no longer loan applicants more than four and a half times their household income, while the FCA introduced the Mortgage Market Review (MMR). The MMR means that lenders have to make sure that mortgage applicants can realistically afford their repayments even if the Bank of England increases their interest rates by three per cent as expected in the near future. The government has mainly been supportive of both these policies, and expect them to reduce the amount of approved mortgage applications.
The Council of Mortgage Lenders
Even though the FCA and the Bank of England have put measures in place to prevent a housing crisis, recent data published by the Council of Mortgage Lenders (CML) has shown that in June there was a rise in the amount of mortgages taken out to purchase properties. Compared to June 2013 this is a massive fifteen per cent increase, showing that the market is not slowing down even with the introduction of harsher lending criteria.
However, the CML is not too concerned that figures haven’t fallen drastically, as some claim that the government should be wary of stalling the housing market just as it’s getting back on its feet. For example, Paul Smee, director general of the CML, said: “For the second month running since new FCA rules took effect, lending characteristics remain similar to the market beforehand. We now feel confident that, as we would hope, the mortgage market review [MMR] effect is more gentle dampener than hard brake.”
The Issue of Buy to Let Mortgages
As an increasing amount of people in the UK now reside in private rental properties, it is not surprising to see that the government hasn’t introduced new lending criteria for buy to let mortgages. In fact, some are claiming that it has never been easier to take out a buy to let mortgage as lenders are offering record-low interest rates as well as multiple products all created specifically for landlords including landlord insurance and contents insurance.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Buy-to-let continues to grow as investors seek better returns than they can earn on cash and more certainty than the stock market. Lenders have been cutting buy-to-let rates and easing criteria in an effort to ensure lending volumes are not too dented post-MMR because buy-to-let doesn’t come under its remit. Investors are benefitting from cheap mortgage rates, less strict criteria and plenty of demand from tenants looking for decent property to rent.”
However, even though the rules are currently quite lax when it comes to buy to let mortgages now, with the government focussing on getting more individuals to buy homes instead of rent them, it’s unlikely that this will continue for much longer.
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