View more on these topics

Early repayments are just an illusion

mm michaelcoogan3
MICHAEL COOGAN, DIRECTOR GENERAL, COUNCIL OF MORTGAGE LENDERS

Following publication of the Bank of England’s December negative net lending figure it may seem that borrowers are paying back mortgages at a cracking rate.

But this is largely an illusion created by the unusually low level of transactions in the market.

Net lending is the difference between the values of gross new lending and repayments. Both fluctuate so the net lending figure also fluctuates significantly.

This volatility is particularly noticeable at the current low levels of market activity.

As the remortgage market withered, lump sum repayments on redemption and refinancing fell, hitting the bottom in February 2010. The current monthly rate of redemptions is about 0.6% of total mortgage debt, compared to an average of more than twice that earlier in the decade.

Repayments of capital have stayed broadly stable for about a decade at around 0.2% of total mortgage debt every month. If borrowers were taking advantage of low rates to increase their repayments, these proportions would have risen.

In the past two years, lump sum repayments accounted for 0.1% of mortgage debt per month. So there is little evidence borrowers repay sooner due to low interest rates.

While this raises the question of how affordable loans will be when rates rise, we think that, as they were granted when base rates were higher, borrowers will adjust their discretionary spending to adapt to higher costs.

Recommended

House prices rose just 0.6% in past year, index shows

The average house price has risen by only 0.6% over the last year, reveals the latest LSL and Acada-metrics House Price Index. Prices in January are also down 0.1% compared to December, taking the average house price to £221,211. David Brown, commercial direc-tor of LSL Property Services, says: “Concerns over the direction of the economy, […]

david_finlay.gif

Take advantage of business optimism

January saw two pieces of overwhelmingly positive news from brokers via their distribution partners. Research from The Mortgage Alliance revealed that 86% of the respondents surveyed expect business volumes to rise in 2011. Legal & General’s Advisor Confidence Index for Q4 2010 also indicated that 85% of advisers predict business will improve or at least […]

Phone - thumbnail

Pension Wise — now taking calls…

Those with decent-length memories will recall that in the 2014 Budget statement George Osborne announced the new (and entirely unexpected) pension freedoms. The new rules come fully into force in less than two weeks.

Newsletter

News and expert analysis straight to your inbox

Sign up