Lending plans 'may put brakes on rates'

 

Plans to revitalise lending could put the brakes on rising mortgage
rates but people who already find themselves shut out of borrowing are
unlikely to see a dramatic change, analysts said today.

Household borrowing has remained sluggish in recent months with a trend towards people paying down their debts rather than taking out new loans amid the uncertain economy and tough employment conditions.

Mortgage lending plummeted in April, as the number of house purchase loans fell by 30 per cent month-on-month to 36,000 loans worth £5.3 billion, figures released yesterday by the Council of Mortgage Lenders (CML) showed.

The drop has in part been put down to the ending of a two-year stamp duty concession for first-time buyers in March, which lenders and estate agents say has distorted the market.

But lenders have also been tightening their borrowing criteria amid the weak economy and the continuing eurozone crisis, which has made it tougher for people to take out a mortgage and triggered a drop in the proportion of approvals.

They have also been raising their mortgage rates in recent months for both new borrowers and more than a million existing ones, blaming the increased cost of funding a mortgage.

Vicky Redwood, chief UK economist at Capital Economics, said that the new measures may simply act to stop rates rising further.

She said: "It will make a difference but it could just be that these measures stop mortgage rates and business rates from rising further, rather than bringing about falls.

"Banks have faced increases in costs which they haven't fully passed on yet."

Ms Redwood said that the intervention could possibly soften the blow of borrowing criteria becoming more restrictive.

But she added: "The question is whether banks want to lend more to households, when the outlook is so uncertain.

"I don't think we're suddenly going to see the tap fully turned on."

Bank of England figures showed this week that the typical rate being offered to customers for a two-year fixed rate mortgage with a 25 per cent deposit held steady at 3.66 per cent in May, following increases every month since October last year.

The rate for two-year fixed deals for people with just a 10 per cent deposit increased by 25 percentage points from April to 6.04 per cent, the highest rate since January 2011 and a figure which has also been steadily rising since last autumn.

Other types of household borrowing have also been weak. Credit card lending contracted by the biggest monthly amount since 2006 in April, with repayments outstripping new borrowing by £118 million.

There have also been signs that people are dipping into their savings to cover high living costs rather than taking out new credit.

Recent figures from the Building Societies Association (BSA) showed that withdrawals from accounts in April outweighed new saving for the fifth month in a row.

Savers have struggled to find accounts giving them real returns on their money following three years of record low interest rates.

James Cotton, marketing manager at mortgage broker London and Country Mortgages, said that just the announcement alone could give lenders a confidence boost.

He said: "I don't know whether we're necessarily going to see a lot more lending going on. Lenders are being very cautious about who they will lend to and how much of a deposit people have.

"I don't think it will necessarily change that, but it might help the price of mortgages come down a bit. There might also be a bit more of a choice of mortgages."

He added: "This is a scheme to counteract major problems. It could give banks a little bit more confidence, that even if things do go downhill with the eurozone, there is a bit of support there."

PA

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
News
i100
Arts and Entertainment
The beat is on: Alfred Doda, Gjevat Kelmendi and Orli Shuka in ‘Hyena’
filmReview: Hyena takes corruption and sleaziness to a truly epic level
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable