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Negative Mortgages Set Another Milestone in No-Rate World

The world’s headlong dash to zero or negative interest rates just passed another milestone: Homebuyers in Denmark effectively are being paid to take out 10-year mortgages.

Jyske Bank A/S, Denmark’s third-largest lender, announced in early August a mortgage rate of -0.5%, before fees. Nordea Bank Abp, meanwhile, is offering 30-year mortgages at annual interest of 0.5%, and 20-year loans at zero.

Years of easing by central banks hacked away at interest rates around the world, distorting the traditional economics of lending and borrowing. This is most pronounced in Europe, where a composite home-loan rate across the euro area fell to 1.65% in June, the lowest since records began in 2000.

Euro Area Mortgage Rate Hit Record Low in June

While some regions have resisted the trend, borrowing costs are at or near rock-bottom in many major world markets. That’s boosted demand from homebuyers and spurred fierce competition among lenders for their business.

Here’s a snapshot of mortgage rates around the world:

U.S.

The average American 30-year mortgage rate is 3.6%, the lowest since November 2016. A resulting surge in demand for homes sent total mortgage debt to $9.41 trillion in the second quarter, surpassing the peak reached during the 2008 financial crisis. Mortgage brokers, too, are rushing to keep up with demand for refinancing: Applications are running at a three-year high.

The benefits for home buyers are muted in cities such as New York and San Francisco, however, because the boom has led to a shortage of affordable homes.

France

French mortgage rates reached a trough of 1.39% on average in June, according to Bank of France data. The country’s banking industry is extremely competitive: Many lenders have jockeyed to lure customers with cheaper offers.

Germany

German mortgage rates also reached historic lows this year, with the average 10-year loan currently under 1%. Some lenders are offering rates around 0.5%, according to Interhyp, a comparison website.

The prospect of further declines in benchmark borrowing costs could drive many mortgage rates toward zero. This may have a limited impact on the residential market, however — only 46% of Germans are homeowners, compared with an EU average of 69%.

Cheaper by the Euro

Nearly 70% of euro area countries have lower mortgage rates this year

Euro-denominated loans for house purchase, includes floating and fixed rates

U.K.

Mortgage rates in the U.K., by contrast, have been almost unchanged this year, despite a drop in overall borrowing costs amid a worsening economic outlook. The rate on a two-year fixed mortgage fell just 8 basis points from January to July, compared with a 38 basis-point drop in two-year swaps.

One reason for this, says Mark Gilbert of Bloomberg Opinion, is that the Bank of England’s regulatory arm has discouraged lenders from trying to win market share by easing standards because it’s concerned about their financial strength.

Hungary

Mortgage costs are fairly high in Hungary because regulators steered almost all borrowers away from cheaper (but less secure) floating-rate loans. A 10-year fixed-rate mortgage is currently around 5%, compared with money-market rates near zero.

The attraction of security was heightened by memories of a fashion for mortgages taken out in Swiss francs before the financial crisis. The subsequent plunge in the forint against the franc hammered as many as 1 million Hungarians.

Greece

Mortgage rates have actually risen in Greece, burdened by sovereign and corporate debts. The average floating-rate home loan was 3.08% in June, an increase of 11 basis points from a year earlier.

Greek banks’ mountain of soured loans means they have become wary of extending new credit, even when secured by a house.

Hong Kong

Mortgage rates are also climbing in Hong Kong as the political crisisweakens the appetite for loans. Both HSBC Holdings Plc and Standard Chartered Plc increased effective rates by 10 basis points to 2.48% in July, according to Bloomberg Intelligence.

Singapore

DBS Group Holdings Ltd., Singapore’s largest bank, is offering a three-year fixed-rate mortgage at 1.89% in the first year, rising to 2.18% in the second and third years. Floating-rate loans are set at about 1.13% above deposit rates.

Loan-to-value limits for mortgages were tightened last year to prick an incipient property bubble. Residential home prices have been recovering as foreign buyers return to the market, with private home sales jumping to the highest level in eight months in July.

Japan

The Bank of Japan’s negative-rate policy has kept home loans affordable. A 10-year fixed-rate mortgage can be had for about 0.65%, and Sumitomo Mitsui Trust Bank offers a rate as low as 0.53%.

This has spurred property purchases, and prices, in the larger cities, helping reverse years of decline following the bursting of the market bubble in 1991. Residential land prices in the greater Tokyo area rose 1.3% last year, while those outside major urban areas increased 0.2%, the first rebound in 27 years. Nationwide, though, prices stand at just 38% of their 1991 levels, according to the Land Ministry.

Australia

Mortgage rates have fallen about 40 basis points following the Australian central bank’s back-to-back interest rate cuts in June and July. The average standard variable rate at the nation’s big four lenders is currently 4.94%.

The decline in mortgage rates, along with an easing of lending rules and the surprise re-election of the center-right government, has fired up Australia’s housing market. Following a two-year slide, property prices in Sydney have risen over the past two months.

South Africa

The cost of a home loan remains relatively high in South Africa. Banks’ prime lending rate is about 10%, and mortgage borrowers can expect to pay anywhere from two percentage points below that rate to five points above it.

While banks are starting to extend more loans to compete for market share, mortgage rates are unlikely to drop much. Inflation is generally high, and the central bank has held its benchmark rate above 6% since 2015.

Nigeria

Nigeria has had double-digit inflation since 2016, with mortgage rates to match — as high as 30%. Those who contribute a small percentage of their income to the state-owned bank can get a much better 9% rate from the National Housing Fund.

Mortgage uptake is low because of high rates, low incomes and a long wait for government-backed loans.

Source: Bloomberg

3,034 Nigerians Receive N2.6 Billion To Build Houses -Federal Mortgage Bank

The Federal Mortgage Bank of Nigeria (FMBN) has disbursed  N2.6 billion to 3,034 beneficiaries under  its intervention housing loan through the Federal Staff Housing Loan scheme, the Managing Director, Ahmed Dangiwa, has said.

Dangiwa said this in Abuja when Hannatu Fika,the Executive Secretary of  Federal Government Staff Housing Loans Board, paid him a courtesy visit.

“As the federal government tries to provide cost effective and affordable housing for civil servants, it is pertinent to note that a total sum of N2.6 billion has so far been disbursed by the Federal Mortgage Bank of Nigeria to 3,034  beneficiaries through the Federal Staff Housing loan.

“I am also indeed very pleased with the remarkable results that we have been able to achieve in the Home Renovation Loan,”  he said.

According to him, the Home Renovation Loan is one of several products of the bank aimed at ensuring contributors to the National Housing Fund benefit from the scheme.

He stated that the FMBN Home Renovation Loan was created for the purpose of renovating existing structures at six per cent for tenure of five years maximum.

Source: saharareporters

Dangote Seeks Mortgage Financing In Nigeria

Africa’s richest man and the President of the Dangote Group, Alhaji Aliko Dangote has called for the need to adopt proper mortgage financing and consumer credit in Nigeria.

According to him, the availability of these is important in tackling corruption, alleviating the sufferings of people and reducing the hardship encountered by buyers when purchasing goods in the country.

 

Speaking during a visit to the National Leader of the All Progressive congress (APC), Bola Ahmed Tinubu, Dangote said,  “I believe what will help us the most is mortgage financing or consumer credit. Most people go into corruption because they are worried about how to get a roof over their head, or how to buy furniture because we live in a society where everything you’re buying you pay cash.”

He cited an example whereby if one has a job and needs to purchase goods and services like a car of 5 million naira, instead of paying it at once, there should be provisions for the individual to pay like N50, 000 or N100, 000 every month.  This means that once you have a job, you should be able to afford most things comfortably.

The business tycoon had previously stressed the need for the Central Bank of Nigeria (CBN) and commercial banks to develop consumer credit products in order to encourage low income earners to engage more in loan taking.

What you should know: Over the years, experts have insisted that mortgage finance is central to the nation’s economic development but it is yet to be given proper attention by the government. This reduces its contribution to the national Gross Domestic Product (GDP). Nigerian mortgage banks are known to charge between 19 to 24% or may be higher, depending on the risk volume.

Therefore, Dangote called for the assistance of government in making mortgage financing and consumer credit more accessible in the country.

Source: nairametrics

Double-Digit Mortgage Rate Highlights Nigeria’s Fragile Macro-Economic Fundamentals

…NHF incapable of meeting everyone’s housing needs, experts say

High mortgage rate, which continues to deny many Nigerians the privilege of owning homes, portrays how weak macro-economic fundamentals are in Africa’s most populous nation, experts have said.

The experts, who spoke at Real Estate Investment Series (REIS) organised by K. ParkWood in Lagos, added that this weakness undermines the country’s ability to bridge its housing deficit and also provide affordable houses for low-income earners who form the bulk of Nigeria’s population.

In advanced economies, the mortgage industry contributes significantly to economic development with a single digit interest rate. The reverse is the case in Nigeria, where relatively high inflation rate and high mortgage rates hurt demand for housing.

Nigeria needs annual production of about 750, 000 housing units for the next 20 years to close its housing deficit. And this is a herculean task for a country stuck with low growth after a 15-month recession, even as limited access to funds lowers the performance of mortgage industry.

Kayode Omotosho, the executive secretary of Mortgage Banking Association of Nigeria (MBAN), in his presentation at the August edition of REIS with the theme, ‘Financing Home Ownership: A Focus on Mortgages and Housing Funds as Veritable Platforms’, maintained that mortgage rate was in double-digit because it was largely determined by market conditions.

“Market condition is what determines interest rate. We want to assure you that we are mindful that double-digit rate on mortgage is not the best; we are in talks with the Central Bank of Nigeria, but economic issues have to be addressed for mortgage rate to come down to single digit,” he said.

The MBAN boss assured further that his organization remained committed to improving funding sources for housing projects. Part of efforts in this regard, according to him, was the registration of nine mortgage brokerage companies, creation of mortgage default loss of job insurance scheme as well as collateral replacement indemnity scheme.”

“When these schemes are fully implemented, you will begin to see representatives of mortgage banks approaching you to assist with funds to actualize your housing dream,” he said.

Omotosho stressed that the National Housing Fund (NFH) loans are insufficient to meet the housing needs of every Nigerian, saying there is the need for multiple housing vehicles.

“Nigeria cannot survive only on NHF. We need private sector-led public-driven mortgage institutions in the country”, he said, adding that Canada that has less than a quarter of Nigeria’s population has about three housing vehicles.

In his speech, Ahmed Dangiwa, the managing director of Federal Mortgage Bank of Nigeria (FMBN), represented by the bank’s deputy general manager, Abiodun Fashina, stated that accessibility and affordability of mortgage defined the business model of the bank.

Fashina, in his presentation, noted that the lower-income earners, who account for over 70 percent of Nigeria’s population, are most affected by the country’s housing issues. He, however, maintained that low income of workers is the chief constraint to accessing housing facility.

Giving the performance scorecards of the state-owned FBMN, Fashina said as at the end of June 2019, the bank had 23, 199 registered organizations, 4.68 million contributors, 1, 125 registered co-operative societies, 21, 987 co-operative members, 20, 000 NHF loans disbursed, 2, 214 micro-loans worth N4.3 billion disbursed and N750, 000 mortgage loans refinanced.

He added that FMBN would partner National Employers Consultative Association (NECA) and Trade Union Congress (TUC) to construct 100 houses across the country’s six geo-political zones.

Kayode Ogundimu, the chief executive officer at Nigeria Mortgage Refinance Company (NRMC), represented by Dorothy Obata, Head of Business Development, noted that the firm has in the last four years raised N19 billion to refinance mortgages.

“We issued an N8 billion Series I bond in 2015 and another N11 billion series II bond in 2017. This shows how serious we are with our mandate to promote home ownership across Nigeria.”

REIS is the first investor-centric series birthed to deepen the knowledge base of individual and institutional real estate investors.

Source: businessdayng

Harnessing Mortgage Industry Potential to Grow Economy

The mortgage industry in Nigeria has got a lot of potentials that close industry watchers say, if harnessed, could lead to the growth of the industry and the wider economy.

A lot still needs to be done for the mortgage industry in Nigeria to get out of the woods. Apparently, the industry is in perpetual growth challenge that has kept its contribution to the gross domestic product (GDP) at a very low level.

Many factors have been fingered for this slow growth, including the Land Use Act of 1978 which rests land ownership rights on the state governors, the right to easily foreclose on delinquent borrowers, ease of creating a legal mortgage and perfecting titles and the ease of falling back on one’s collateral to recover bad loan, etc.

The relative newness of the industry, lack of understanding of its dynamics and operational models by many Nigerians, and poor appreciation of the need and the ultimate benefits of keeping money in a mortgage bank are other militating factors.

Another major impediment to the growth of the sector is low investment in the industry. This accounts significantly for the low contribution of the industry to Nigeria’s gross domestic product (GDP). In advanced economies of the world, the mortgage industry makes significant contribution to economic development, but in Nigeria, this is not the case.

Mortgage finance as a percentage of Gross Domestic Product (GDP) is as low as 0.5 percent which is several steps behind other economies including Mexico, Malaysia and South Africa where mortgage contributions to GDP are as high as 10 percent, 25 percent and 29 percent respectively.

However, notwithstanding the industry’s low contribution to GDP coupled with the challenging business environment, the industry has all the potential to stimulate the economy when all the identified obstacles inhibiting its growth are removed.

An economy like Nigeria’s can benefit a lot from a flourishing mortgage industry as it will help in directing the economy in the desired direction. As part of efforts at growing the economy, government can make the necessary investment aimed to grow the industry. Enabling policies should also be put in place, leading to reduced high interest rate that can encourage more people to embrace mortgage loans.

Operators are of the view that on account of the identified obstacles, some primary mortgage banks (PMBs) are going through very difficult times, such they are not able to meet loan applications from home seekers.

The operators insist that until all those issues are resolved in a way that encourages the provider of capital, in this case, the mortgage bank, to give out loans, the sector will not grow as desired.

But they hope that when these obstacles are removed, the supplier of mortgage will allocate more funds towards the provision of home loans while home buyers will better appreciate the implication of prompt interest and capital repayments as well as ensure discipline on the part of the people.

Some finance experts argue that limiting a mortgage institution to a fixed capital base of, say N10 billion, is wrong because that amount is too meager; even N100 billion is also meager given the kind of projects they finance.

For this reason, the Federal Government needs to come in, look at what is happening in other civilised world and copy because, these days, “copying is no longer an act of deception but actually something that is done even in the civilised world,” says Okika Ekwem, a US-based realtor.

Ekwem says that in the advanced economies like US and UK, there is a secondary market for real estate financing where commercial banks or individual brokerage banks lend money to people and thereafter sell the securitised certificate to the secondary market and come back again to lend to individuals.

Mortgage industry growth that can impact the economy, according to Meckson Innocent Okoro, is possible if the Federal Mortgage Bank of Nigeria (FMBN) plays the role of a regulator while the federal government, through the CBN, should empower the PMBs.

To have a viable mortgage industry that can have significant impact on the economy, more PMBs have to be licensed such that there could be as many as 40 in each of the big cities, while each of the smaller cities could get as many as 10.

This is to discourage the concentration of these banks in urban centres and when this is done, access to housing finance will be increased. The PMBs must be positioned to champion the whole issue of affordable or social housing for the low income earners in the country.

Mortgage finance as it is today, is not particularly established as a structure and as it exists in developed economies. The culture of mortgage finance is just gradually catching on with Nigerians and mortgage is financed the same way as every other commercial financing.

It is curious that after the recapitalisation and consolidation of the PMBs, Nigerians are yet to feel the impact in the economy. As at today, the interest rate as it is cannot mobilise the industry and the situation is such that even at 10 percent, the level of income in the country cannot still support mortgage growth.

There was a time in this country when the economy and the financial system were highly regulated, there was different interest rates structure for different sectors of the economy and within that period, lending to the housing sector was as low as seven to eight percent which underscored the importance attached to the sector and the government needs to look into this.

Source: businessdayng

Mortgage rates plunge to their lowest levels in 33 months

Driven down by worries about a trade war with China, mortgage rates have sunk to multiyear lows.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average tumbled to 3.6 percent with an average 0.6 point. (Points are fees paid to a lender equal to 1 percent of the loan amount and are in addition to the interest rate.) It was 3.75 percent a week ago and 4.59 percent a year ago. The 30-year fixed rate, which hasn’t been this low since November 2016, has fallen nearly a full percentage point since the first of the year.

The 15-year fixed-rate average dropped to 3.05 percent with an average 0.5 point. It was 3.2 percent a week ago and 4.05 percent a year ago. The five-year adjustable rate average declined to 3.36 percent with an average 0.3 point. It was 3.46 percent a week ago and 3.90 percent a year ago.

“Mortgage rates fell to fresh multiyear lows this week as intensifying trade tensions rattled markets,” said Matthew Speakman, a Zillow economist. “This week’s escalation of the conflict greatly overshadowed a series of market-moving economic reports, including July’s jobs data, typically the most-watched report each month, and pushed mortgage rates down sharply, as investors sought the safe haven of government bonds. With a light dose of economic data on deck for the coming week, the market’s attention will likely remain on gauging the impact of the trade war on the global economy.”

The yield on the 10-year Treasury sank to three-year lows this week as trade tensions with China escalated, global economic growth slowed and moves by central banks across the globe made investors anxious. It fell to 1.71 percent on Wednesday and hasn’t been above 2 percent this month.

Bond yields move in opposite directions of prices. When demand for bonds is high, prices rise and yields fall.

Long-term bonds tend to be the most reliable indicators of where mortgage rates are headed. However, home loan rates haven’t declined as sharply as the 10-year yield.

“The big move down in Treasury yields has not yet translated into similarly lower mortgage rates,” said Michael Becker, branch manager of Sierra Pacific Mortgage in White Marsh, Md. “Mortgage-backed securities have not rallied as much as Treasuries. This often happens when Treasury yields drop quickly.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found that half of the experts it surveyed say rates will move lower in the coming week. Becker is one of the experts predicting rates will continue to fall.

“Mortgage rates are the best they’ve been since November of 2016,” he said. “If this move in Treasury yields holds, I would expect mortgage rates to start to catch up with the move in Treasury yields and we will see lower rates in the coming week.”

Meanwhile, falling rates caused mortgage applications to pick up. According to the latest data from the Mortgage Bankers Association, the market composite index — a measure of total loan application volume — increased 5.3 percent from a week earlier. The refinance index jumped 12 percent from the previous week, while the purchase index fell 2 percent.

The refinance share of mortgage activity accounted for 53.9 percent of all applications.

“The lowest mortgage rates in well over two years led to a surge in refinancing, with activity up 12 percent last week and 116 percent from a year ago,” said Bob Broeksmit, MBA president and CEO. “Purchase applications also continue to trend higher than year-ago levels, but activity has decreased in recent weeks. Concerns about the economic outlook and stock market volatility are likely causing some prospective buyers to delay their home search.”

The MBA also released its mortgage credit availability index (MCAI) this week that showed credit availability decreased in July. The MCAI edged down 0.4 percent to 189 last month. A decrease in the MCAI indicates lending standards are tightening, while an increase signals they are loosening.

Source: washingtonpost

Single-Digit Interest Rate on the Way for First Home Buyers Seeking N5m Mortgage Loan

Access to housing finance is getting increasingly less stressful and ‘cheaper’ for home buyers as both public and private sector operators are working on reviewing high interest rate which is a major challenge to mortgage affordability in Nigeria.

While the Federal Government through the Federal Mortgage Bank of Nigeria (FMBN) is now offering zero equity on loans below N5 million to all contributors to the National Housing Fund (NHF), plans are in progress for primary mortgage banks (PMBs) to offer mortgage loans at 9.9 percent interest rate to any first-time home buyer seeking N5 million loan for the purpose of owning a home.

A mortgage banking operator who disclosed this to BusinessDay on condition of anonymity explained that the 9.9 percent interest rate is being perfected by the Central Bank of Nigeria (CBN) which, he said, will be subsidising the rate in favour of home buyers.

“The Nigeria Mortgage Refinance Company (NMRC) will continue to go to the capital market to raise funds and will also continue to refinance our loans,” the operator explained. “What is going to happen is that if, for instance, we get our funds from either the NMRC or CBN at 15 percent interest rate, we will be required to lend to first-home buyers at 9.9 percent and CBN will off-set the balance.”

The operator admitted that 9.9 percent, which is an upper single-digit rate, is still very high, but noted that it was a good start on the journey towards addressing the affordability issue in the mortgage system which constitutes a huge golf between many Nigerians and homeownership.
To the operator, what the mortgage industry needs today is reduction in interest rate and not recapitalisation as is being considered by the CBN.

“Capital adequacy is not the problem of the industry today. If the industry is not growing, it is not because of capital, because we have enough capital from the earlier recapitalisation and refinancing by the NMRC. The interest rate needs to be reduced so that more people will take loans. That way, the industry will grow,” the operator said.

Other industry operators and real estate stakeholders see the problem of the industry beyond recapitalisation.

Whereas Paul Onwuanibe, CEO, Landmark Group, blames lack of clarity for the industry’s slow growth, Adeniyi Akinlusi, CEO, Trustbond Mortgage Bank, looks at the structure of the industry.

“The structure of the mortgage industry is a problem; there is high interest rate and this is coming on the back of economic condition,” noted Akinlusi, who is also president of Mortgage Bankers Association of Nigeria (MBAN).

He stressed that “recapitalisation is not the main challenge, considering that mortgage banks do not give loans from shareholders’ funds but funds from deposits”.

Kehinde Ogundimu, MD/CEO of NMRC, shares the view that recapitalisation is not the main challenge of the mortgage industry, recalling that his company, as at December 2018, had refinanced mortgage loans originated by the lending institutions totalling N18 billion.

He explained that refinancing was in line with the company’s mandate to promote affordable home-ownership in the country by leveraging funding from the capital market to deepen liquidity in the primary and secondary mortgage markets.

Typically, mortgage interest rate in Nigeria hovers between 7 percent and 10 percent for FMBN mortgages and 15-25 percent for commercial mortgage institutions, making the country one of the highest in the world.

In advanced economies, the mortgage industry makes significant contribution to economic development with single-digit interest rates. But high inflation rate and the attendant high mortgage rate help to reduce housing demand and developers’ investment appetite.

This explains why Nigeria has one of the world’s lowest mortgage to Gross Domestic Product (GDP) rate at about 0.6 percent, which is far behind Ghana’s 2 percent, South Africa’s 30 percent and US and UK’s rates of 60 percent and 70 percent, respectively.

Source: businessdayng

Mortgage Refinance Applications Rise as Trade Issues Cause Rate Drop

The economic tensions between the U.S. and China drove interest rates down last week, leading to a surge in refinance applications, according to the Mortgage Bankers Association.

And with the benchmark 10-year Treasury yield falling under 1.6% at one point Wednesday morning, more declines in mortgage rates are likely in the near term.

Mortgage application volume increased 5.3% on a seasonally adjusted basis from one week earlier, according to the MBA’s Weekly Mortgage Applications Survey for the week ending Aug. 2.

This was driven by an increase in the refinance Index of 12% from the previous week.Refi application volume was 116% higher than the same week one year ago. The refinance share of mortgage activity increased to 53.9% of total applications from 50.5% the previous week.

The seasonally adjusted purchase Index decreased 2% from one week earlier, while the unadjusted purchase index decreased 2% compared with the previous week and was 7% higher than the same week one year ago.

“The Federal Reserve cut rates as expected last week, but the bigger influence on the financial markets was the beginning of a trade war with China. The result was a sharp drop in mortgage rates, which will likely draw many refinance borrowers into the market in the coming weeks,” Mike Fratantoni, the MBA senior vice president and chief economist, said in a press release.

“The 30-year fixed-rate mortgage fell to its lowest level since November 2016, and the drop resulted in an almost 12% increase in refinance application volume, bringing the index to a reading over 2,000 — its highest over the same time period. We fully expect that refinance volume will jump even higher this week given the further drop in rates. Lower mortgage rates did not pull more homebuyers into the market, as purchase volume slipped a bit last week.”

Adjustable-rate mortgage activity remained unchanged at 4.7% of total applications and the share of Federal Housing Administration-insured loan applications decreased to 11% from 11.3% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased 7 basis points to 4.01%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350), the average contract rate decreased 8 basis points to 3.96%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased 8 basis points to 3.86%. For 15-year fixed-rate mortgages, the average decreased 11 basis points to 3.37%. The average contract interest rate for 5/1 ARMs decreased to 3.36% from 3.52%.

Source: nationalmortgagenews

Mortgage Borrowing Rise Signals Stabilisation in UK House Market

6 UK mortgage borrowing picked up slightly in June, suggesting the housing market may be regaining some stability after stalling in the run-up to the original March Brexit deadline.

Figures released by the Bank of England on Monday showed mortgage approvals for house purchases — an indicator of future lending — increased by about 800 to 66,400 in June, slightly higher than analysts had expected and above the monthly rate of 60,000 projected by the BoE in its May inflation report.

Households’ net mortgage borrowing of £3.7bn was also higher than in May, although the annual growth rate of mortgage lending remained stable at 3.1 per cent — around the level it has been at since the vote to leave the EU in 2016. Brexit-related uncertainty and political turmoil has weighed on UK property markets, with house price growth slowing across the country and prices falling sharply over the past year in London.

However, the most recent data have pointed to a modest improvement, with surveyors polled by RICS, the industry association, becoming less pessimistic about market dynamics.

Howard Archer, economist at the consultancy EY Item Club, said the reprieve from a disruptive Brexit in March, together with better consumer purchasing power and strong jobs growth, had helped, although “the overall benefit has been relatively limited”. The BoE data also showed a slight increase in consumer credit growth, which rose by £1bn in June, compared with £0.9bn in May.

However, the annual growth rate — which has fallen steadily since 2016 — continued to slow, falling to 5.5 per cent in June from 5.7 per cent a month earlier. Within this, the annual rate of growth in credit card lending has also slowed. Consumers’ apparent restraint could be a worrying sign, since household spending has been the main driver of economic growth in recent months.

 

Businesses have been reporting slowing activity and recent data suggest the economy may have flatlined in the second quarter, but households have benefited from record employment, modest tax cuts, a lift in public sector pay and the latest rise in the national minimum wage. Samuel Tombs at Pantheon Macroeconomics consultancy said that since lenders no longer planned to reduce the supply of consumer credit, the data were “consistent with the economy retaining momentum ahead of the Brexit deadline”.

The BoE data also showed a pick-up in borrowing by non-financial companies — largely in the form of bank loans and corporate bonds. Mr Tombs saw this as positive, arguing that demand for external finance would be falling if the slump in business investment was worsening. He also noted that net issuance of commercial paper — a way to raise short-term funds — was falling, after a spike in the first quarter of the year, when companies were struggling to find cash for pre-Brexit stockpiling.

Source: ft

First-Time Buyers ‘Underestimate Size of Deposit’

Aspiring homeowners are substantially underestimating the size of the deposit they need to get on the housing ladder, while women save half as much as men, according to research underlining the barriers facing first-time buyers. In a survey of about 5,000 UK adults aged between 18 and 40 — treated as a sample of potential first-time buyers — Santander Mortgages found two-fifths (42 per cent) of respondents had saved nothing towards their first home. The average pot saved towards a deposit among other respondents was £8,300, with men saving an average £11,600 and women £5,620.

When asked what they were targeting as a total saving for a deposit, participants’ responses averaged £24,816 — significantly below the average deposit of £44,000 put down by first-time buyers in figures published in March by the Office for National Statistics. Santander said the aim of home ownership was moving out of reach even for middle earners.

“With the majority of mortgage borrowing limited to 4.5 times gross salary, the deposit amount buyers in each region say they are looking to save would price individuals, or households relying on a single middle income, out of every region in the UK,” the lender said.

The proportion of middle earners — those bringing in between £20,000-£30,000 in 2019 — who own their own a home has declined from 65 per cent in 1996 to 27 per cent today, the report said.

Today, buying is increasingly restricted to those with higher levels of household income and dual-income couples. Some 64 per cent of first-time buyers have household incomes of more than £40,000 and 16 per cent are individual buyers. Miguel Sard, managing director of Santander Mortgages, said the situation was likely to worsen unless the government took further action.

“Without change, home ownership in the UK is at risk of becoming the preserve of only the wealthiest young buyers over the next decade.” The warning comes at a time of intense competition between mortgage lenders, with many offering low rates and other deals, and growth in the number of home loan deals at loan-to-value rates above 90 per cent. Yet high house prices in many areas and tight mortgage regulations have still left many buyers struggling to pass lenders’ affordability tests.

The survey also quizzed people on what they would like to see the government do to help first-time buyers. Top of the list, with 37 per cent in favour, was a call to extend Help to Buy, the government’s popular equity loan scheme that is due to end in 2023. Thirty-five per cent would support rent caps; while 33 per cent were in favour of stamp duty land tax being cut for buyers of homes under £500,000 — a proposal floated by Boris Johnson during his campaign for the leadership of the Conservative party.

Santander did not lend its support to those proposals but used the survey as an opportunity to sound its own call to action. Noting that the inability to raise a deposit was seen as the biggest barrier to ownership among aspiring buyers, it suggested an extension of the current Forces Help to Buy scheme, which allows those in the armed forces to take an interest-free loan of 50 per cent of their annual salary towards the purchase of a home, to a maximum of £25,000. This scheme could be extended to public sector workers such as nurses and police, Santander said.

It also questioned the “stress rate” that regulators require lenders to use when judging whether a mortgage is affordable. Borrowers must be able to afford the loan under a notional interest rate that is 3 percentage points higher than the rate customers revert to at the end of a fixed rate period. Graham Sellar, Santander head of mortgage business development, said the stress rate was originally based on a five-year projection of interest rates by the Bank of England.

Today, similar projections look much flatter in the medium to long term. “It’s a call to look at that figure and to make affordability better for customers, especially first-time buyers.” The research also underscored the role of the Bank of Mum and Dad in supporting first-time buyers. Forty per cent of those interviewed said they were relying on an inheritance to boost their deposit — much higher than the 10 per cent recorded in government statistics who used an inheritance for this purpose in 2017-18.

The authors warned that the role of housing equity in providing a stepping stone for the next generation was limited. “As life expectancy increases, we can expect the number of people in care to increase and the wealth they have built up through property ownership quickly diminished,” the report said.

Source: ft

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