Housing & mortgage round upAnother week sees yet another confusing set of housing data as the Nationwide say house prices rose last month.

The Office of Budgetary Responsibility (OBR) has published figures which predict a housing boom over the next few years.

However, figures which show mortgages are being repaid at a record rate show that home owners are still nervous about the housing market and economy in general.

House prices increased by 0.4% in November

Average UK house pricesNationwide, the UK’s largest building society, has said the average home rose in value by 0.4% in November to £165,798 and considers that house prices have remained “resilient” in recent months.

According to the figures, which are based on Nationwide’s own mortgage data; this represents a 1.6% increase when compared to November 2010.
At the same time the number of mortgages approved for house purchases has risen slightly to its highest level for nearly two years.  The Bank of England said 52,743 mortgages were approved in October, up from 51,193 in the previous month, and the highest monthly total since December 2009.

Robert Gardner, the Nationwide’s chief economist said: “House prices have remained surprisingly resilient in recent months, despite the deterioration in the economic outlook.”

Gardner added that he welcomed the latest announcement from the government encouraging first-time buyer activity; last week the government announced a mortgage guarantee scheme to encourage lenders to offer 95% mortgages to buyers of new homes.

However, Howard Archer at IHS Global Insight gave a reality check by saying: “A pick up in mortgage approvals in October and firmer house prices in November is highly unlikely to herald a significant, sustainable upturn in the housing market’s fortunes given largely unfavorable economic fundamentals.”

2012 may see an increase in mortgage rates says Bank of England

The Bank of England has given a warning that mortgage interest rates may rise, as banks need to pass on higher funding costs.

The Bank said: “At the beginning of the financial crisis, when funding costs rose sharply, banks were relatively slow in updating the price of new mortgages’’.

This previous slow reaction from the banks may cause interest rates to rise and make it hard for mortgage payers in 2012.

OBR predicts rise in both transactions and house prices

The Office for Budget Responsibility (OBR), the independent economic forecaster, has predicted a surge in housing transactions. After years of stagnation the OBR has forecasted a 20% increase in all transactions in the house market in 2013 /14. The OBR has also predicted that house prices will start to rise significantly in two years time.

The table below shows the OBR’s predictions for property transactions and house prices, based on the percentage change from the previous year:

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17
Property transactions -3% 1.5% 20.7% 15.6% 7.4% 6.2%
House prices -0.9% -0.1% 2.7% 4.4% 4.5% 4.5%

House sales fall year on year

Figures released last week by HM Revenue & Customs (HMRC) showed 76,000 homes were sold in October, 1,000 more than in September, but still 3,000 fewer than in October last year. The figures are disappointing as they mean sales for the year so far have fallen  by 5% on 2010.
Record rise in mortgage repayments

Bank of England data has shown that homeowners have repaid a staggering £9.15 billion off their mortgages over the three months to the end of June,
Consumers are clearly nervous of high unemployment, pay freezes, inflation levels, the Eurozone crisis and the generally poor state of the economy. These pressures, together with falling house prices, are contributing to a trend for households to cut spending and reduce their borrowings which has seen a record £9.15 billion of mortgage repayments made in the second quarter of year.

With the Bank of England keeping its base rate at 0.5%, many people aren’t saving and instead are using any spare cash to reduce their mortgage.

Tight credit conditions have also meant that many homeowners have become less able to remortgage their home and draw down on their equity. This lack of remortgage activity has contributed to the large reduction in outstanding mortgage balances; it is also hurting the economy as money released following remortgages has traditionally been spent on home improvements and to fund other large purchases.

Howard Archer, at IHS Global Insight, said; “The record net injection of housing equity in the second quarter points to a strong desire and perceived need of many people to improve their personal financial balance sheets given high debt levels and serious concerns over the economic situation and jobs.”

He continued: “Furthermore, extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages. In particular, many people may be using the extra money that is resulting from their very low mortgage interest payments to reduce the balance that they still owe on their houses.”