Finance Update

It is estimated that when Halifax raises its standard variable rate on 1 May 2012, nearly 850,000 customers will see their mortgage rate rise from 3.5% to 3.99%. This comes as another to blow to these customers as the cash in their pockets is reduced to cope with rising mortgage payments. This news will undoubtedly dissuade some first-time buyers from entering the property market and will do very little to encourage those already on the property ladder from taking their next step.

These people are often second-time movers who have watched the equity in their homes erode over the last few years and are left with little choice but to sit and wait for their property to recover its purchase value.

While there is still some doom and gloom, we are also beginning to see some light at the end of the tunnel with news that the property market is starting to show signs of recovery. In January this year, Move with Us’ own data showed an increase of 3.4% in house prices, compared to the average house price in January 2010 (average in 2010: &131,322 versus January 2012: &135,894).

HSBC recently reported a 12% growth in mortgage lending, with the highest approval rates reported since 2009 - while we expect that this was probably caused by the number of first-time buyers rushing to beat the stamp duty holiday deadline on 24 March, it would have also helped push property prices up. If you compare the repossession figures to those experienced in the last recession in the early 1990s, the signs are better than expected. Given the poor performance of the economy and recent rises in unemployment, the final figures for mortgage arrears and repossessions in 2011 were much better than expected. Even in the highest peak of the latest recession, the number of arrears was around 222,000, less than half the level experienced in the early 1990s.

The benefit of mortgage forbearance from lenders this time around has meant that more people have been able to stay in their homes. Interest rates have stayed relatively low at 3% to 3.5%, compared to double-digit interest rates e.g. 10% in 1990; lenders have also offered assistance to households struggling to keep up with repayments with reduced interest rates and payment holidays.

This has clearly helped to keep the number of serious arrears down but probably the biggest impact of this has been on repossessions. At their highest level in 1991, repossessions were at 76,000 compared to current rates of just over 30,000 a year, a figure which is expected to remain somewhat unchanged over the next five years.

If however, the economic recovery disappoints and the backlog of serious arrears remains high, this figure could easily return to around 45,000 a year. We expect that the full implications of these arrears and repossessions are still to come. Whilst we want to support more lending and the availability of higher LTV mortgages, we remain concerned that if these measures are re-introduced too quickly, lenders may get ahead of themselves again and this could impact the predicted figures.
Categories: Hunters News