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Confusing market signals

Some indicators point towards a possible recovery in the mortgage market although LTVs remain stubbornly high, says Sally Laker, managing director of Mortgage Intelligence

We are getting mixed messages about whether or not the mortgage market is on the mend.

On one hand, the number of available mortgage products in March reached 3,725 – up 24.9% from February according to Trigold’s latest product index. This is encouraging and is a tangible sign that lender confidence is returning, along with the availability of funding.

Furthermore, new sellers in the market pushed average asking prices up by almost £4,000 during April in the largest rise seen for 14 months, figures from Rightmove reveal.

There is also some encouragement regarding broker activity as measured by the number of times online mortgage advice sourcing is performed, with this increasing slightly in March. Taken as a whole, Q1 2009 shows a 40% increase compared with Q4 2008.

Some 802,707 advice sources were performed in March which represents an increase in broker activity of 1.45% compared with February.

While this is a small step in the right direction it still represents a massive 45% drop in broker activity compared with March 2008 and equates to some 646,000 fewer searches in the year.

The average monthly mortgage payment in March was £759.34 which is just £1.69 higher than the previous month but £154.30 cheaper than in March 2008. Of course, this highlights the effect of the numerous interest rate falls we have seen in the past year or so.

Rightmove’s house price index for April shows that the average asking price has risen by 1.8% to £222,077 compared with £218,081 the previous month. This is the third month in a row that average asking prices have risen, which Rightmove suggests may indicate that the housing market has hit a price floor. And confidence is thought to be returning, as the number of new sellers also increased last month.

Some 22,260 home owners per week are looking to sell their properties and while this number is down 19% from the same time last year it has climbed 13% since March. The average length of time properties are on the market has fallen from 81 days to 77.

On the other hand, Moneyextra.com’s index reveals the average mortgage LTV has hit a two-year low, along with the number of loans available.

This index continues to show that lending to first-time buyers with deposits of 5% is practically non-existent which is a worry, along with the fact that the supply of borrowing for first-time buyers with 10% cash to put down as deposits has decreased by some 84% year-on-year.

Only 36% of customers looking to clamber onto the housing ladder with 15% deposits are finding deals, and the average LTV for first-time buyers is now 71%.

And statistics show a similar story for individuals looking to remortgage, with the average LTV being 69% compared with 82% last year.

Although the average price of a property has risen in the past three months, the price of a new home declined 3.4% in March following the monthly increase recorded in February.

This is the largest monthly price fall recorded since the downturn in the new homes market began in 2007, taking the annual decline above 13% for the second time this year.

There must be significant pent-up demand for new homes which should push prices back up once the availability of funding improves, coupled with an increase in the number of mortgage deals on the market.

An easing of LTVs would also stimulate the wider market, especially for first-time buyers.

With regard to support for home owners, the Treasury’s Homeowner Mortgage Support Scheme – an initiative which allows households at risk of repossession to defer up to 70% of the interest on their mortgage payments for up to two years – has gone live, although some big lenders have opted to offer their own alternatives. This should help to stabilise the market.

The initiative is open to borrowers who are owner-occupiers, have an outstanding mortgage of less than £400,000 and savings of less than £16,000. Lenders offering the scheme will have the security of a government guarantee if borrowers default.

At the time of writing, the following lenders will offer their customers this support – Lloyds Banking Group, Northern Rock, the Royal Bank of Scotland, Bradford & Bingley, Cumberland Building Society and the National Australia Bank Group.

Some specialist lenders have also signed up although Barclays, HSBC, Nationwide and Santander plan to offer comparable support arrangements to their customers.

So at least lenders are doing their best to keep borrowers in their homes and this, coupled with government initiatives to support home owners, is good news for many.

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