The number of mortgage approvals in the UK is still at a very low level and fails to reflect the growing opinion that the mortgage market as a whole is beginning to recover. And naturally the knock-on effect of a low level of mortgage approvals is that there are fewer house purchases and the stagnation of the market continues.
What is surprising is that this drop in mortgage approvals comes at a time of falling mortgage rates and a static Bank of England Base Rate. There are also record-breaking fixed rate deals on offer for all customers and particularly for high net worth mortgage customers with large deposits.
Some experts are suggesting that the downturn in approvals is due to less demand from borrowers and not due to the limited availability of affordable mortgages, particularly amongst first time buyers. But, typically, the cause is hard to pinpoint and is obviously affected by seasonal variations throughout the year. Many potential buyers may also be waiting to see how the property market evolves in the coming year and, in the meantime, are continuing to save for a larger deposit and to try and consolidate their existing debts.
While the overall number of mortgage approvals has decreased, what is interesting is that, loans where the buyer has a larger deposit have actually increased and now account for one in every eight loans in the UK. Larger deposits are considered to be those that range from 15 per cent to 40 per cent of the property purchase price.
This information suggests that the UK mortgage market is not yet on the road to recovery. While mortgage rates may be falling, the UK economy continues to struggle and many people simply do not have the confidence in the economy to commit to a major purchase such as a new home, which is such a long-term financial commitment. Nevertheless, falling mortgage rates, which continue to break historical records, have been credited with the increase in demand for home loans even though many of these applications are not approved.
The large mortgage market has seen a range of record-breaking deals over the past year with examples such as two-year fixed rates for high value mortgage clients at less than 2 per cent. Such mortgages are often only available to those with a 40 per cent deposit and many also come with arrangement fees of up to £2,000. Even so, they are still very attractive deals for those with a large enough deposit, or enough equity in their existing homes, to qualify for one.
Such low rate deals will not only appeal to those looking to move home but also homeowners who want to remortgage while remaining in their current home. Many people considering remortgaging could come from other lenders who are not offering good deals to existing customers or who, in some cases such as the Bank of Ireland and the West Bromwich building society, are actually increasing their rates unfairly for existing customers. Whatever the reason, it is clear that only those seeking a large mortgage and with a large deposit in excess of 15 per cent are in a position to take advantage of the low mortgage rates on offer.