The gap between London Interbank Offered Rate (LIBOR) and base rates narrowed to 0.37, only slightly above the long term average of 0.2, indicating that the banks’ confidence in one another has improved, says CB Richard Ellis (CBRE) and this is essential to engender a fully functioning mortgage market.
‘Without a fully functioning mortgage market, the recovery will be uneven and unsustainable. Although there are signs that the mortgage market is starting to defrost, we are far from a full thaw,’ said Jennet Siebrits, head of Residential Research, CB Richard Ellis.
‘Mortgage rates are falling and the number of products on offer is increasing, but lending still remains muted and relatively expensive. New products are focused at the top end of the market and until deposit requirements relax, mortgages will remain the preserve of homebuyers with significant equity,’ she explained.
‘Even though we do not anticipate an interest rate increase until the final quarter of the year, when it comes it will ultimately feed through to mortgage rates and dampen activity in an already weak housing market. However there is room for lenders to absorb some of the rate rise, which will mitigate a spike in arrears and repossessions,’ she added.
However people are increasingly nervous about taking out loans to buy property with a separate piece of research suggesting that over six million Brits have given up on the mortgage game.
House hunters now estimate that they'll buy their first home at 38 years old and only 5% of potential first time buyers currently have a deposit saved, according to the report from moneysupermarket. It shows that the number of mortgage products available to first time buyers currently stands at just 1,581, a fraction of the 14,940 available in pre-crunch Britain in July 2007. But over the last year, the number of first time buyer products available has risen by almost 200, offering some hope for those trying to break into the housing market. There has also been a 47% increase in the number of mortgages available up to 90% loan to value and the average interest rate has dropped by 2.43% since July 2007, bringing more welcome news for first time buyers.
But it also points out that the average LTV for products available to new buyers is 77%, meaning someone taking out a mortgage on a £150,000 property would need a deposit of £34,500, well beyond the means of most first time buyers.
‘It's easy to see why nearly a third of non home owners do not intend to step foot on the property ladder. House prices may have fallen in many areas but they are still high. This coupled with the need for such a high cash deposit is pushing many people out of the market,’ said Clare Francis, mortgage spokesperson.
‘There is still limited choice if you have a deposit of less than 10% and the rates on these mortgages are around 5.3%, which is significantly higher than the most competitive rates. This also means that the monthly repayments first time buyers face are often higher than for those who have larger deposits to put down,’ she explained.