Housing & mortgage round upThe data coming from the housing market is so confusing at the moment that this week’s headline could easily have read “House prices fall over the past year, whilst first time buyer negative equity is double the average”.

Whatever spin is put on the headlines, it’s important to look at the underlying numbers, which is exactly what we do this week. We look at the latest house price survey, negative equity figures as well as the ‘interest-only time bomb’, again!

House prices rise, but lack momentum

After September’s fall in house prices, reported by the three major house price surveys, the Nationwide announced this week that prices actually rose by 0.6% in October.

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Despite the rise, the UK’s largest building society, reported that prices were still down by 0.9% on this time last year. This takes the average house price to £164,153, significantly below their peak of £186,044 in October 2007, but well above the lowest point of £147,746 in February 2009.

The Nationwide figures show no clear trend in house prices, with as many falls as rises over the past six months. The Nationwide said that house prices will remain subdued whilst the economic uncertainty, particularly over jobs and wages, continues.

Robert Gardner, Chief Economist at the Nationwide, said: “Wage growth is still not keeping up with the cost of living and unemployment is still well above normal levels.”

“This helps to explain why housing market activity has remained subdued, with the number of mortgage approvals still running at little more than half their long-run average.”

Pain of negative equity easing

Despite the fall in house values over the past year, reported by the Nationwide, new figures show that the pain of negative equity is easing for many homeowners.

The research by the Council of Mortgage Lenders (CML) has said that the number of borrowers in negative equity, where the value of their home is lower than the amount they owe on their mortgage, has dropped by 13% over the past year.

According to the CML the number of homes in negative equity has dropped by 108,000 to 719,000. Rather than a result of house prices rising, the fall is due to borrowers repaying debt, seemingly nervous about the state of the economy.

The CML compiled their figures after looking at the data for seven million mortgage borrowers, concluding that the negative equity problem is most serious for people who bought their houses between 2005 and 2008. However, of all borrowers who took out a mortgage since 2005, only 10% are now in negative equity, although for first time buyers this figure rises significantly to 20%.

During the current housing slump, negative equity has been far less of a problem than during the 1990’s, when even higher rates of unemployment and sky high interest rates meant borrowers had little spare cash to reduce their mortgage balances. It also seems that lenders are now more forgiving when a borrower finds themselves in arrears, giving more time to bring mortgage accounts up to date, and less likely to repossess the property.

57% of Interest-only mortgage borrowers rely on house price rises

Despite the CML’s figures on negative equity, new research shows that more than half of borrowers with an Interest Only mortgage are replying on house prices rises to repay their debt at the end of the term.

The research, done by financial outsourcer, HML, showed that 57% of over 1,100 people surveyed were confident that their mortgage debt would be repaid as a result of rising house prices.

Worryingly the survey also found that 42% of interest-only mortgage borrowers could not afford their monthly repayments if their mortgage lender was to increase interest rates.

Interest-only loans were popular in the 1980’s usually backed by investment vehicles such as Endowments or Personal Equity Plans (PEPs). During the last housing boom many people took out interest-only loans but without a suitable repayment vehicle, banking on house prices rises allowing them to sell their property and repay the debt at the end of the term, leaving them enough money lleft over to buy a home outright.

Mortgage experts generally believe this to be a hugely risky strategy, which could leave many borrowers unable to repay their loan at the end of the term, if prices do not rise sufficiently.

HML Chief Executive, Andrew Jones, said: “There is an unrealistic expectation amongst a significant number of interest-only borrowers that annual house price inflation will return to double digits and dig them out of a sticky situation.”

He continued: “There is a challenge to help consumers understand there isn’t going to be a return to runaway house price rises anytime soon and it is therefore their responsibility, along with lenders, to make appropriate arrangements to address the issue.”

“The financial services industry needs to get a grip on this issue quickly and proactively contact borrowers to find a solution that is workable. Providers also need to think about innovative ways of helping people stay in their homes. What is clear is that doing nothing is not an option.”

Our mortgage adviser, Linda Wood, is here to help you. If you would like advice on your options or you are affected by any of the stories in this week’s housing round up please call  Linda today on 0115 933 8433, alternatively enquire online or email linda.wood@investmentsense.co.uk

Your home may be repossessed if you do not keep up repayments on your mortgage.

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