Mortgage activity drops by 12%

Mortgage activity drops by 12% in August reveals the results from the National Mortgage Index compiled by Mortgage Advice Bureau and Coreco Group.

Related topics:  Mortgages
Millie Dyson
13th September 2010
Mortgages
The traditional summer lull, buyer concern over the state of the economy and further potential house price falls saw mortgage activity drop 12% in August 2010 compared to July 2010, with purchase mortgage applications falling by 10.8% and remortgage applications dropping by 15.3%.

The drop-off in mortgage applications can be attributed partly to seasonal factors, although the summer lull has come slightly later this year, as July registered only a 0.3% fall in total mortgage applications and only a 1.3% drop-off in purchase applications compared to June.

Regionally, the most significant drop off in purchase mortgage applications was in the North of England (which includes Cumbria and Tyne & Wear), with a 23.6% fall in applications in August compared to July.

By contrast, the North West (which includes Lancashire, Greater Manchester and Merseyside) actually saw a surprising 9.4% rise in mortgage applications in August compared to the previous month.

The average LTV on purchase mortgages dropped from a six-month high of 71.1% in July to 70.2% in August, while the average loan size for purchases dropped 7.3% from £139,404 in July to £129,270 in August.

Average LTVs on remortgages rose from 55.6% in July to 56.9% in August, although average remortgage loan size fell 6.5% in the same period, from £143,821 to £134,416. Regionally, the average LTV on purchases arranged in August was highest in Wales (81.2%) and lowest in the South West (67.8%).

When deciding whether to go with a variable or fixed rate mortgage product, an increasing number of applicants seem to be willing to take the risk that interest rates will stay low for some time yet.

August saw 41.5% of applicants choosing a variable rate mortgage (purchases and remortgages), compared to 38.8% in July.

The average age of a UK mortgage applicant in August was 37 years, with the oldest applicants in East Anglia (43 years) and the youngest in Yorkshire & Humber (34 years).

Brian Murphy, head of lending, Mortgage Advice Bureau, said:

“Although mortgage activity typically drops off in August due to the summer holiday period, the decline this year is certainly larger than we would expect on seasonal factors alone.

“There’s no doubt that the mini-housing boom we’ve witnessed over the past year has slowly run out of steam, and with prices likely to tail off, or at best remain flat for the rest of the year, mortgage activity is unlikely to pick up noticeably before 2011.

“With public sector cuts and tax hikes around the corner, inflationary concerns and constant doom-mongering about a double-dip recession, buyers’ confidence is hardly robust.

“We should have a much clearer picture as to how the mortgage market is likely to perform for the rest of the year once the Coalition Government announces its spending review next month, and many prospective buyers are likely to wait until the details of the review are published before they make a decision on whether to burden themselves with more debt.

“On a more positive note, there are some very competitive mortgage rates out there at the moment and it’s very much a buyer’s market, so anyone who is in a position to buy should seriously considering purchasing while the market is working in their favour.

“Of those buyers who are committing to a mortgage, it seems the concerns over imminent interest rate rises has eased slightly. Our figures show that borrower appetite towards fixed rates has tailed off slightly, with fixed deals overall falling from a little over 60% in July to 58.5% in August.

“On a regional level the picture is more marked with more than half of all borrowers in Wales (52.1%) opting for variable deals in August, although this was the only region where variable rates were in the ascendancy.

“Finally, mortgage product availability has further improved in August with the number of mortgage deals available on the major sourcing systems reaching year-to-date highs.”

LONDON MORTGAGE REVIEW

The average LTV on purchases has fallen from 68% in July to 66.4% in August. A year ago the average LTV on purchases was 73.6%. The average loan size in August was £249,728, which is 11.3% lower than in the previous month (£281,504), and 6.6% higher than in August 2009 (£234,186).

There has been a significant change in the percentage of fixed versus variable mortgage applications in August compared to the previous month when the split was 50:50. Total mortgage applications (purchase and remortgages) saw a noticeable move towards fixed rate products with 63.3% of all applications for fixes.

Meanwhile, purchase mortgages alone, 66.3% of all applications were for fixed rate products.

The average LTV on remortgages arranged in August was 55.5% compared to just 46.8% in July, while the average loan size in August 2010 was £249,893 a drop of 24.1% on July (£329,204).

The London market continues to buck the trend seen by the rest of the market, and August was the fifth consecutive month that recorded an increase in purchase mortgage applications, with a 9.2% rise on the previous month.

The average age of a new mortgage applicant in London in August was 39 years compared to 36 years in July.

Andrew Montlake, director, Coreco Group, said:

“The London property market has always existed in its own housing market bubble and while the rest of the country has seen purchase applications dropping, in London they have held up due to the numbers of people, many of whom originate from abroad, who need to be within easy reach of the City.

“The fall in average Loan-To-Values continues to reflect both the amount of foreign money that has been making its way into the market a
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