Figures from the Council of Mortgage Lenders (CML) revealed that the number of mortgages advanced for house purchases was 23% higher in June than in May, while the number of loans for remortgages was up 13% on the month. This data suggests that the plight faced by potential house buyers caused by the mortgage shortage is beginning to ease.
However, the CML was quick to point out that, while this is a move in the right direction, we are still a long way off a return to normal conditions. A total of 1116,700 mortgages were taken out for house purchases in the second quarter of the year, 50% more than in the preceding three months. The number is still 22% lower than in the fourth quarter of last year, and mortgage lending in June was still less than half the average number of loans that were advanced in June over the past seven years.
Paul Samter, economist at the CML, said: "Low interest rates and realistic selling prices have helped generate a welcome increase in transactions. But there is some way to go before we reach normal levels of activity."
What's holding the market back?
One of the main problems is that many people are still struggling to get a mortgage. The leading deals are still only available to borrowers lenders deem to be lowest-risk - those with significant deposits and excellent credit scores. Unless you have a deposit of 25% or more, the number of loans available is very limited and the rates are higher.
For example, only 28 lenders are offering mortgages up to 90% of a property's value and just seven will lend up to 95%. The best rate you can get if you need a 90% mortgage is 4.59% - this is on a lifetime tracker from HSBC and the fee is £999. However, if you have a deposit of 25%, Co-operative Bank has a three-year tracker at 2.39% with a £995 arrangement fee.
The ongoing shortage of mortgages, especially in the high loan-to-value arena, is precluding many would-be house buyers from transacting at the moment. So until we see more banks and building societies willing to lend to those with smaller deposits, the mortgage market will remain subdued. In turn, this will hold back the recovery of the housing market.
While no one wants a return to the pre-credit crunch days when just about anyone could get a mortgage, the pendulum does seem to have swung too far in the opposite direction.
There have been tentative signs of some lenders relaxing criteria slightly in recent weeks but we need something more widespread for it to have an impact and for us to see a return to more normal conditions in the mortgage market.
And your options if you're looking for a mortgage now...
If you're unsure whether to go for a fixed or variable rate mortgage or want more information on what deals are available, read our article 'The mortgage conundrum - fix or tracker?'.
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