Mortgage lending is firmly on the rise, meaning that now could be the ideal time to make a property purchase. Despite this, potential buyers face a tough time saving for a deposit as rent rates have also increased to a record high.
Total mortgage lending for July increased to the highest level for the entire year, according to the Council of Mortgage Lenders (CML).
Lending rose by 8% from June across mortgagers for buyers and people who are remortgaging. July was the highest monthly level of the year, with £12.7 billion lent in mortgages, a rise of 2% on the same month in 2011.
Whilst this is a light at the end of the tunnel for potential buyers and generates genuine hope in the market once again, the CML warns otherwise.
The organisation stated that this news does not necessarily reflect the state of the wider housing market, which remains ‘broadly flat’.
“Interpretation of recent trends continues to be challenged by one-off effects,” said Caroline Purdey of the CML.
“We look forward to the September figures when the distorting effects of the Diamond Jubilee and the Olympics should largely have worked their way through,” she added.
The National Housing Federation found that the average house price is 94% higher than a decade ago. In 2001, the typical price of a house was £121,769 and the average salary was £16,557. Now the average property price is £236,518 while average wages are up 29% to £21,330.
“Ten years ago the average amount that you would have needed for a deposit was about nine months worth of salary. Now you need three years’ worth,” the federation’s chief executive, David Orr, told the BBC.
The UK housing market has been making a slow recovery since the height of the banking crisis in 2008. Banks and lenders were initially reluctant to dish out mortgages to those deemed a ‘high risk’ and required higher deposits in these cases. New borrowers typically have to put down large deposits of at least 20%, which many simply cannot afford.
Banks and lenders have started to relax and offer higher Loan-To-Value (LTV) Mortgages which require smaller deposits. Whilst this is a positive step in the right direction, it could be a long time before pre-recession levels are reached.
Mark Harris, of mortgage broker SPF Private Clients, highlighted that recovery in lending was still “a long way off”.
“The focus on the Olympics, the continuing eurozone crisis and weak consumer confidence is likely to result in a slight drop-off in transactions over the next couple of months,” he said.
The Bank of England has launched a new ‘Funding for Lending’ Scheme, which offers banks and lenders cheap funds on the condition that the money is lent to personal or commercial borrowers. This move could ultimately help to boost the housing market.
Rental prices have steadily risen over the past few years as a direct result of the global housing market crash. More and more people have been forced to rent as they cannot afford the large deposits required to secure a mortgage. This puts more pressure on the private rental sector, allowing landlords to push up rates as the demand is so high. As the price of rent increases, this eats away at any chances that buyers have of saving for a deposit, leaving them in a state of limbo.
The average rental cost in England and Wales last month increased by 1% to £725 a month. This is the fourth consecutive monthly increase, according to the buy-to-let LSL Property Service index. The 1% increase surpassed the previous record high of £720 in October last year.
David Newnes, director of LSL Property Services, commented: “The rental market is also entering its summer peak, as recent graduates and those with new jobs begin to look for new accommodation.”
“With more tenants on the move, alongside long-term underlying demand, fierce competition for properties is enabling landlords to increase rental prices to new highs.”
Rents rose in eight out of the ten regions in July, with the highest increase in London and the South East at 2.2%. The average rent in the capital is now £1,057 a month.
The second largest increase for rent was in the West Midlands, rising by 1.8%. The only falls in rental prices were recorded in the East of England and the South West, both down by 0.4%.
“The backlog of frustrated first-time buyers in the private rented sector showed no sign of clearing in July – in fact, it is still growing,” Mr. Newnes added.
“As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way in the long-term – providing further upwards momentum for rents.”