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Financial Website Directory Ireland

Hope for Buyers as Mortgage Affordability Improves in the UK

Author: Eve Pearce
Category: Regional: United Kingdom: Mortgages UK
Date Added: August 29, 2012 07:33:06 PM
Page Views: 21691

It is a story that is all too familiar within the UK’s press. The country’s largest banks have for quite some time been reporting big profits. In fact, last month it was reported that the pre-tax profits of UK banks was higher now than it was before the worldwide financial crisis. In 2012, Barclays is expected to make £7billion Lloyds Banking Group £3.3billion, Royal Bank of Scotland £4.6billion and HSBC £15.4billion.

Taking advantage of the Bank of England’s continuously low base borrowing rate, the banks have definitely been taking their time to pass on these low rates to their customers.  Savers, on the other hand, have indeed seen the low base rate passed their way; savings accounts were hit the hardest, leaving those with savings to turn to other investment trusts in order to make a respectable return on their money. Even then, bonds and various other investment options with the banks have been quick to reduce their more attractive rates as they took measures to maximise profits during the peak of the recession.

However, there is now good news for borrowers, at least. A recent report suggests that trend is starting to change and that new borrowers are now at last feeling the benefit at last of these low rates; Mortgage repayments – as a percentage of disposable income – have fallen to a 15 year low.

Passing on the benefits

It has taken several years for the banks to pass on their low interest rates to customers. However, the banks are now slowly starting to offer a range of mortgage products to customers that are more fairly reflective of the perpetually low base rate. This also comes at a time when house prices are in a continuous decline. Thanks to increased numbers of repossessions in the past few years, the growth in the number of properties for sale has now overtaken the numbers of buyers.

Falling house prices

The recent report by property analyst Hometrack showed that, on a whole, house prices fell in August and July by 0.1%. Hometrack predicted that this reduction in price is likely to increase further over the coming months. The property analysts’ report also showed that demand from buyers was decreasing, with estate agents reporting a fall in new buyer registrations for the third consecutive month.

Rising sales

Although it appears from these results that property is less in demand, what is particularly notable from the report is the increase in the number of sales agreed. Unusually, this figure is not correlating with new buyer registrations, but instead has risen by 6.5% across the UK. This, Hometrack advises, could be due in part to the low base rate. Rumours that the base rate could be set to drop further by the end of this year is also arousing interest among those buyers that are in a position to be approved for a mortgage.

Low rates

Although it remains fairly difficult to obtain credit for a mortgage, it appears the deals are there for the taking for those with good credit history and a substantial deposit. The interest rates on these mortgages are so low that the amount of a borrower’s income that would go towards mortgage repayments has decreased by 43% since 2007. A typical payment for first time buyers and movers alike is, on average, just 26% of take-home income. Northern Ireland was the area of the UK that has seen the biggest reduction in average mortgage repayments since 2007. Five years ago, new borrowers in Northern Ireland were spending an average of 63% of their earnings on their mortgages.

Variable rates

Those benefiting the most are those that were lucky enough to take out tracker mortgages before the housing crisis, as we already know. However, the UK’s surge to lead the housing market to recovery is resulting in encouragement for banks to pass on their low interest rates to new customers. As such, those with clean credit histories can enjoy rates as low as around 3% on a standard variable rate. It is clear that the housing market still has a long way to go to reach recovery, but the news that mortgages are becoming a lot more affordable will surely be welcome news to many buyers.