The large mortgage loan drought which has prevented many millions of borrowers from getting the high value mortgage they need in recent years is finally over. That’s the view of the Bank of England whose new report says that banks and building societies are showing ‘an increased willingness’ to lend – even to buyers with small deposits.
The Bank also believes that it will become even easier to borrow over the next few months.
Government intervention helping end the ‘mortgage drought’
For six years, the large mortgage market in the UK has been cautious about agreeing loans. The choice of mortgage products fell sharply after the credit crunch and borrowers found it increasingly hard to get a home loan – particularly at higher ‘loan to values’.
Now, though, the Bank of England says that the country’s lenders ‘expect the availability of secured credit [such as mortgages] to significantly increase’ between January and March this year. And, unlike recent years, it said people who have a deposit of 25 per cent or less can get loans.
Part of the reason for the improvement has been the intervention of the government. In a recent speech, David Cameron said: “Too many people have found themselves frozen out of the market in recent years as a result of the deposit required.
“That is why as part of our long-term economic plan we introduced the Help to Buy scheme, so hard-working people with sufficient earnings can get on, fulfil their aspirations and enjoy the security of owning their own home.”
While the average young person puts down a deposit of 20 per cent, the Help to Buy scheme requires a deposit of only five per cent, but allows people to buy an old or new home for up to £600,000.
The Daily Mail reports that, on average, people using the scheme have a household income of around £45,000, the majority are not buying in London and the South East and more than 80 per cent are first-time buyers.
Lenders including Royal Bank of Scotland, Lloyds Banking Group and the Post Office are now offering Help to Buy loans. But, it’s not just government intervention that has resulted in the end of the ‘mortgage drought;’, as we see next.
Banks showing a greater appetite to lend
In its report, the Bank of England also said lenders have been watering down the stringent tests which people must pass before they are given a loan. It said: ‘Consistent with an increased risk appetite, credit scoring criteria were loosened and the proportion of loan applications being approved increased significantly.’
Islay Robinson, CEO of London mortgage broker and high net worth mortgage experts Enness Private Clients, said: “While Treasure schemes such as Help to Buy and Funding for Lending have helped borrowers, there are signs that the lenders themselves are gaining an increased appetite for new business.
“With strong competition between High Street lenders, there are now more mortgage deals available than at any time since the global financial crisis. Even though the Funding for Lending scheme has been withdrawn for mortgage lending, I expect the availability of cheap deals and an increased range of low deposit mortgages to continue to help the UK’s large mortgage market to recover in 2014.”