Rise in new mortgage sales hides ‘two-speed market’ as homeowners fail to refinance

Published 14th Dec 2009

The number of mortgages taken out to buy a home rose to the highest level for almost two years in October as the housing market continued to rally.

The Council of Mortgage Lenders said that 55,000 mortgages were taken out for purchases in October, the highest monthly total since December 2007. The figure is more than double the January 2009 low of 23,000 and is a 9 per cent rise on the previous month.

The number of home loans advanced to remortgage borrowers and first-time buyers remained unchanged between September and October. However, the figures were viewed as a sign that low interest rates for those with large deposits, together with recent house price rises, are encouraging those who are able to move to take advantage of the favourable market conditions.

The number of loans to home movers — a group that does not include first-time buyers — rose by 15 per cent between September and October, with the bulk of borrowers opting for tracker mortgages as evidence grows that interest rates are set to remain low for the long term.

Michael Coogan, director-general of the Council of Mortgage Lenders, said: “We are still in a two-speed mortgage market. It appears that low interest rates for those with substantial deposits, coupled with this year’s sustained increases in house prices, are encouraging more people to buy or move.

“But the same low rates that are driving house price activity provide little incentive for borrowers to refinance their loans. This, coupled with tightness in lending criteria, continues to hold back the remortgage market.”

The increase in demand has yet to encourage housebuilders to build more homes. Official construction figures published separately yesterday showed a 1 per cent fall in private housing orders in the three months to October 2009 compared with a year earlier.

The figures, from the Office for National Statistics, showed that this has been offset by a 10 per cent rise in social housing construction over the period, compared with the same quarter in 2008, as the Government brought forward more money for investment in affordable houses.

Construction orders for public and private housing and for private industrial and commercial building, all increased in September and October, while housing orders were up 5 per cent on the previous quarter. Infrastructure and other public construction orders showed signs of slipping, down from £668 million to £564 million and from £870 million to £502 million respectively over the month.

These figures will be interpreted as a sign that public spending cuts are already beginning to bite. Private commercial building of shops and offices rose from £598 million in September to £763 million in October, according to provisional calculations.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: “This hard-pressed sector does at last appear to be stabilising after a 15 per cent drop in output. The latest numbers point to a firmer tone to orders in the residential arena.

“Private commercial orders also rose surprisingly strongly, climbing to their best level in a year. While this could be a reflection of more positive news flow emerging from the commercial property market, we would be cautious about reading too much into one month’s numbers.”

Source: ' Times '

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