Housing & mortgage round up: House prices fall, whilst Nationwide pull out of Interest Only mortgages
Posted on October 5th, 2012 | Categories - News
A busy week for housing and mortgage news.
Two house price surveys have shown prices fell during September, with the average price falling though the psychological £160,000 barrier.
In other news, the Bank of England kept interest rates on hold, whilst Santander have increased their Standard Variable Rate for existing customers.
House prices fell in September
The latest figures from the UK’s two largest mortgage lenders show that house prices fell in September.
Both the Halifax and Nationwide house prices were 0.4% lower in September than they were in August. According to the Halifax, the average house price is now £159,486, a fall of 1.2% on the same time last year. The Nationwide put the figure slightly higher at £163,964, with a higher year on year fall of 1.4%.
Despite the monthly fall, which was the third month in a row that the Halifax have reported a drop, both organisations believe the market is stable.
Robert Gardner, Chief Economist at the Nationwide, said: “UK house prices declined by 0.4% in September, after recording a 1.1% rise in August. Monthly price changes have been impacted by a number of one-off factors this year, such as the ending of the stamp duty holiday that cannot be controlled by the usual process of seasonal adjustment.”
He continued: “For this reason the annual rate of house price change is a better guide to the state of the market at present. On that basis, the housing market remains fairly stable, with prices 1.4% lower than September 2011.”
Martin Ellis of the Halifax agreed: “Overall, there has been very little change in the average UK house price so far this year.”
“There is, nonetheless, evidence of a slight deterioration in the trend recently with prices in the three months to September 0.5% lower than in the previous quarter.”
“We expect house prices to be broadly unchanged over the rest of this year and into 2013,” he concluded.
Housing experts are hoping that initiatives such as the Funding for Lending Scheme will help kick-start the housing market, however other factors such unemployment levels will continue to play a major part.
Robert Gardener again: “Labour market developments will remain of paramount importance in deciding the trajectory of house prices. There are grounds for caution on this front, as the unusual combination of rising employment and declining economic activity that was evident in the first half of 2012 is unlikely to be sustained.”
Interest rates unchanged
As expected the Bank of England’s Monetary Policy Committee (MPC) has voted to leave base rate unchanged at 0.5% for a further month.
The MPC also voted not to increase the existing £375 billion program of Quantitative Easing (QE), although some experts believe that an increase to the stimulus is more likely in November.
The news that base rate will remain unchanged for yet another month will of course be greeted with delight by borrowers whose mortgage deals are linked to the Bank’s base rate.
Spare a thought for savers though, who are seeing their interest rates, which were already low, and have been cut further as a result of the Bank’s Funding for Lending Scheme.
Nationwide calls time on Interest Only mortgages
The Nationwide Building Society has said it will stop offering Interest Only mortgages to new customers from 11th October.
Interest Only mortgages grew in popularity during the 80’s and 90’s, with people using Endowments, PEPs (Personal Equity Plans) and ISAs (Individual Savings Accounts) to repay loans. However, during the last housing boom many people took on Interest Only mortgages, without a suitable repayment vehicle, just to keep the monthly costs down.
Figures from the CML show that in 1988 12% of first time buyers took out Capital Repayment mortgages, by 2012 this had risen to 96%.
Many of these people are now left with no method of repaying their mortgage, other than switching it onto a Capital Repayment basis, which for many, is unaffordable.
The Financial Services Authority (FSA) has put pressure on lenders to reduce the amount of Interest Only mortgages they are currently approving, in response the Nationwide are the latest lender to pull out of offering such mortgages.
Announcing the move the Nationwide said that only 3% of new applications are made on an Interest Only basis.
Mortgage brokers were quick to point out that the move by the Nationwide would reduce the choice of mortgages available for existing Interest Only borrowers looking to remortgage on a like for like basis. There are also concerns that now the Nationwide have made this move, other smaller lenders will follow, reducing choice even further.
Santander increase their Standard Variable Rate
In the week that the Bank of England kept base rate at an all-time low for yet another month, thousands of Santander mortgage customers have seen their monthly payments rise.
Santander had previously announced that their Standard Variable Rate (SVR) would be increasing, and the change came into effect this week.
The SVR has risen by 0.5% to 4.74% and comes on the back of other mortgage lenders, who have made a similar change.
Santander had previously said that the increase was due to the increased cost of raising money on the wholesale market, which is at odds with the lower interest rates seen over the past few weeks on some mortgage products, principally because of the government’s Funding for Lending Scheme.
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