ROOF Blog

Homeowners paid a record amount off their mortgages in the first three months of 2009 according to statistics from the Bank of England. An estimated £8.1 billion was repaid – the highest sum repaid since records began in 1970 – taking the total for the year to the end of March to £76 billion. From 2000 to 2008 homeowners had borrowed more than £300 billion against the raising value of their properties.

And in further news, the Bank of England has said there were a total of 43,414 mortgages approved in May, up from 43,191 in April, but down on the expected figure of around 46,000. Mortgage landing in May rose by just £324 million, a third of the level in April and a tenth the amount loaned at the same time a year ago. It was the weakest increase since records began in April 1993.

The House of Lords economic affairs committee has criticised the way banks were supervised by the Treasury, Bank of England and the Financial Services Authority and has called for reforms. The committee said it was unclear who was in charge, and criticised the FSA particularly for concentrating on its consumer protection role at the expense of its responsibility for maintaining financial stability. The committee added that the responsibility for supervising the banking system as a whole should be taken from the FSA and given to the Bank of England.

The Bank of England has released figures showing that the number of mortgages approved for house purchases in April rose 8 per cent. Although the number of mortgage approvals was down 21.9 per cent in year on year figures, it was the third month in a row approvals have increased, leading to hopes that activity is picking up. Of the 1,623 mortgage deals on offer, two-thirds still require a deposit of at least 25 per cent and a quarter want 40 per cent.

Meanwhile Abbey National, the country’s second-largest mortgage lender, has announced that it will relax lending criteria on its most popular loans tomorrow. It is lowering the minimum deposit required for its best fixed rate deal from 40 to 30 per cent. The move comes as the Bank of England said that recovery in the economy would be slow and protracted, with low interest rates around for at least another year according to analysts.

Mortgage rates are starting to creep up again, even though the Bank of England held its base rate at 0.5 per cent and has pumped £50 billion into the economy with its quantitative easing. Moneyfacts has found that an average two-year fixed mortgage deal was 4.87 per cent at the start of March, dropping to 4.6 per cent in April, but have since started to increase again. Analyst, Ray Boulger of John Charcol, said that lenders were making the most money from home loans they had for a ‘very long time’, as that they were putting up their rates now to protect their profits from the expected surge in repossessions later this year.

The UK’s biggest building society, the Nationwide no longer promises new borrowers that it will peg its variable rate mortgages to the Bank of England base rate. Existing customers on the variable rate home loan are guaranteed to pay no more than 2 per cent above the bank’s rate, but new customers will move to a new product that is currently charging nearly 1.5 per cent more when their introductory deal ends. Nationwide said that the change will allow it more flexibility over its new mortgages and allow it to provide better deals for savers.

The Bank of England is in talks with seven building societies hoping to renegotiate emergency funds made available during the credit crunch. While the building societies – including Chelsea, Yorkshire and Skipton – are not considered in danger of collapse, last week’s downgrading by credit agency Moody’s threatened to breach the terms of the government’s special liquidity scheme, forcing the building societies to either hand the money back or be changed more to use the funding, possibly further reducing the amount of money available for lending.

Kate Barker, a government adviser on housing and member of the Bank of England’s rate setting committee, has said that mortgages which leave buyers with a risk of negative equity should not be banned and banks that demand huge deposits may have been ‘overdone’. She said that banks over-reacted to the credit crunch by withdrawing so many mortgages for borrowers with small deposits. She also indicated that targeting inflation alone was not sufficient to ensure economic stability.

Meanwhile, consumers are saving less and paying off debts faster, according to research from Nationwide. Less than half of consumers save money regularly, with 25 per cent saving nothing at all, a figure getting worse since the Bank of England dropped its base rate from 2 to 0.5 per cent in December. More than half of those questioned believe it is a bad time to save, and that the government is actively discouraging savings.