Housing round up: Spending on birthdays could affect your mortgage application

In this week’s housing round up we consider the latest evidence that a lack of supply will cause house prices to rise.

We also consider a contrary prediction that house prices will in fact fall over the next two or three years due to a lack of mortgage finance.

However we start with a story that one of the UK’s largest lenders will delve deeper into your finances if they are to approve you for a mortgage.

What do you spend on birthdays? It could affect your mortgage application

The Guardian said this week that Santander has changed how it asks mortgage applicants about their spending habits, reporting the bank will now require more detailed information about both “regular” and “non regular” outgoings.

Santander will now ask would be borrowers about “non regular” expenditure on things such as holidays, subscriptions, birthdays and religious festivals. In a warning to brokers on its website the bank said that “realistic” figures must be entered and that “entering zeros in these fields will lead to a decline decision.”

The move by Santander, one of the UK’s largest mortgage lenders, has left mortgage brokers and industry experts bemused and angry. The Guardian reports one anonymous mortgage broker as saying: “Next they’ll have underwriters in disguise following you around to see where you do your shopping.” Another said:  “Will they be asking if you give your grandchild a fiver when they visit, or if you contribute a quid to the Big Issue occasionally?”

Responding to the criticism Santander said: “The changes we are making to our application process for Abbey for Intermediaries will enable us to collect more information upfront about borrowers’ monthly expenditure, both regular and non-regular, and make it easier for intermediaries to provide all of this information when submitting cases. There is no change to our lending policy.”

However, mortgage experts are sceptical, pointing out that Santander is likely to use this additional information when assessing an application, otherwise why ask it?

Lack of new build properties to cause house prices to rise?

We all know house prices fallen since the height of the housing boom, although over the past 18 months prices seem to have stabilised.

The fall in house prices has generally been attributed to the poor state of the economy, particularly in relation to rising unemployment, and the credit crunch of 2007, the effects of which are still being felt by buyers having to deal with tough mortgage lending criteria.

Despite these factors a new report from the National House Building Council (NHBC) has led property experts to predict that both house prices and rents will actually start to rise.

The NHBC figures show that public sector construction of residential properties fell by 20% in the 12 months to January 2012; private sector construction rose by 9% over the same period. The total number of new residential properties completed in January was 7,831, showing little change on the same time last year.

It seems that the private sector is still nervous about building new homes, fearing that tight mortgage lending criteria and nervousness from borrowers will mean new homes are left unsold. The fall in public sector house building is in most part down to the government’s program of austerity.

Property experts believe that the low number of new homes being built will cause property prices to rise as demand outstrips supply.

Experts also predict the demand for new homes will only increase following the introduction in March or April of the government’s NewBuy Mortgage Guarantee Scheme aimed at helping people, especially first time buyers, to get on the housing ladder.

The NewBuy Scheme will provide a guarantee to lenders in the event of the borrower defaulting on the mortgage and is expected to be popular with would be borrowers finding it hard to obtain a mortgage at the current time.

An alternative view: Lack of mortgage finance to cause prices to fall?

A city wealth manager, Collins Stewart, take a different view though, predicting that a lack of mortgage finance will cause a “lost decade” for the UK housing market.

The research concludes that we can expect “at least two or three years of steady house price erosion” partly due to tight mortgage lending conditions.

However Collins Stewart also argues that the demand is not actually outstripping supply. They dismiss the argument, put forward by many, that prices will rise because the rate at which new homes are being built is not keeping pace with demand.

Previously both politicians and industry experts have claimed we are only building around half of the 240,000 new homes needed each year, but Collins Stewart believe that we have in fact been building homes twice as fast as the population has been growing over the past 20 years with many new build homes not appearing on the official figures.

Alistair Stewart, Analyst at Collins Stewart said: “We believe that periods of rampant house price inflation have more often been caused by over-supply of capital rather than under-supply of housing; the northern buy-to-let boom of the last decade being a prime example.”

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