economic tracker

Market needs more than ‘forced’ sales

25 January 2010

The year so far has brought a broad mix of headlines on what the market will do next and while mortgage applications were up 27% in December for Countrywide’s network of 800 mortgage consultants, I worry about those customers we can’t help.

What about the thousands of mortgage prisoners trapped in their own homes and unable to move?

There are three types of mortgage prisoners: those in negative equity, of which the Council of Mortgage Lenders estimated there were 900,000 in 2009, those on a specialist product that they cannot port and then there are thousands trapped as the cost of moving from SVR is prohibitive.

Skipton Building Society is the latest lender to raise its SVR, which will impact new and existing customers but the overall monthly repayments on fixed and tracker products are forcing would-be home movers to stay put.
While the average SVR is around 3.98%, let’s consider a typical prime SVR customer on 3.5% who wants to take a loan amount of £114,177. This would incur monthly repayments of £577.30 per month.

For customers looking to move to a fixed product, we offer a two-year 85% LTV for 5.74%, which would incur monthly repayments of £726.01. This means they have to find an extra £148.71 a month, plus administration and arrangement fees of up to £1,500 to access the best rates. Some might say that’s not a huge increase but it is when you consider that this comparison is based on the same loan amount - what happens when customers want to move up the property ladder?

There are some glimmers of hope and as SVRs rise and house prices increase, I’m confident that we will see more mortgage prisoners being motivated to make a break for it. But negative equity has left hundreds of thousands with reduced deposits, which will still force many to sit tight.

My point is that the market will not grow or pull itself out of this recession through ‘forced’ sales alone. While lending volumes are up, it’s fair to say that we are a long way off from seeing anything close to the transaction volumes of 2007.

As the UK’s largest mortgage broker we have solutions, but we can only help those who feel ready to talk to us.

GRENVILLE TURNER
GROUP CHIEF EXECUTIVE OFFICER
COUNTRYWIDE