Is the credit crunch still biting... or is the cash finally flowing?
After five years of financial turmoil there's a light at the end of the tunnel at last for anyone who wants a home or a loan
We've survived five years of the global, national and personal financial turmoil that has become the norm since the run on Northern Rock. We're now experts on the phrase "credit crunch" and all that it implies about our money. But while lenders are still keeping a firm grip on their money belts, evidence does finally seem to be gathering that the credit taps are being slowly turned on.
The Building Societies Association (BSA) reports that in the first seven months of 2012 lending by mutuals increased by 39 per cent compared to the same period last year, with the number of mortgages at loan to value (LTV) ratios of 85 per cent or above up 27 per cent.
"I am encouraged by some of the signs we are now seeing on mortgage availability. Building societies and other mutuals have been consistently lending more each month this year," says Paul Broadhead, head of mortgage policy at the BSA, who says one of his main concerns is that some consumers keen to buy, who would actually be able to borrow, don't even get in touch with lenders or brokers for fear of rejection. "There is mortgage supply out there — even at higher loan to value ratios — and it may now be time to stimulate a little more demand."
The number of residential mortgages available is up from 2471 two years ago to 3013 today, according to Moneyfacts.co.uk. And the latest National Mortgage Index from broker Mortgage Advice Bureau (MAB) found that mortgage activity is now 5.6 per cent higher than at the beginning of the year, and year to date 3 per cent higher than at the same time in 2011.
"Availability has decreased since the peak in 2007, but there's some evidence this is slowly beginning to ease", adds Brian Murphy, head of lending at MAB. "It's maybe similar in size to how it was in 2002, though it is not a similar market. Back then mortgage finance was plentiful and the market was expanding."
David Hollingworth from broker London & Country adds:"Lenders are showing more appetite – you can see that by the way they've been pricing products. Criteria are still pretty tight but I think we're in a more stable market and lenders are looking to do some business."
Indeed, notable launches of late include a seven-year fixed-rate loan from Lloyds and Halifax for first-time buyers (FTBs) at 5.89 per cent, up to 90 per cent LTV, which follows HSBC's own seven-year mortgage for new buyers with just a 10 per cent deposit fixed at 4.89 per cent until 2019.
"There are innovative ways to potentially say yes to borrowers who might find the door closed to them elsewhere. It's good to see another lender feeling comfortable enough to go to 90 per cent," says Mr Hollingworth.
In August, Saffron Building Society re-launched its 95 per cent mortgage for first-timers with a rate of 6.49 per cent AER, fixed until February 29, 2016. Instead of using income multiples to determine how much they are willing to lend, Saffron has said it will also take into account a prospective buyer's rental payment history to assess affordability.
For other borrowers the good news is that personal loan rates have also come down; the average loan rate was 12.5 per cent two years ago and has fallen to 11.6 per cent today, says Moneyfacts. Tesco Bank has dropped the cost of personal loans between £7,500 and £15,000 from 5.9 per cent to 5.7 per cent until September 24. And Derbyshire BS and Sainsbury's Bank follow closely behind with the next best rates at 5.8 per cent. But the problem still remains, however, that the top deals are the preserve of pristine customers.
"We have noticed that leading rate loans have come down but this is not necessarily a sign that lenders are loosening their criteria. It is a sign of the fact that they are trying to compete to get particular customers onto their existing products and scorecards," says Nicola Georgiou of loan comparison site Freedom Finance.
The same can be said for headline credit cards, all still reserved for applicants with an excellent credit history. But here at least, there are indications that providers are tentatively increasing their appetite for other business.
"Stricter credit scoring coupled with market uncertainty has resulted in an increase in the availability of credit-building cards. In the last five years we have seen a 100 per cent increase in the number of available cards," says Michael Ossei of uSwitch.com. "As this sector has grown, many credit providers are now bolting on rewards and 0 per cent purchase offers".
Government plans to kick start the economy could further improve things for all borrowers with new plans to extend the FirstBuy scheme (with 16,500 FTBs set to receive help getting on the housing ladder) and the Funding for Lending scheme launched at the beginning of August in a bid to unblock the flow of credit. This provides cheap funding for banks on the proviso they in turn increase lending to businesses and homebuyers.
"A balance between risk and regulation is needed to see a housing market where most borrowers have realistic hopes of owning their choice of home," says Ben Thompson of Legal & General Mortgage Club. "It has been a slow and steady journey to find the happy medium. So far, some banks have done well, whilst others haven't".
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