The future's bright for mortgages and housing

The positive signs that mean we should stop being so gloomy about the housing market.

Continued property price stability and improving mortgage availability make me feel cheery about the prospects for the housing market.

We've had positive house price reports fairly consistently since the bottom of the market in early 2009 (Nationwide reckons prices have jumped 8.9% since last February) - and the good news keeps on coming.

The mortgage market has been gradually improving over the last few months with January in particular seeing an increasing number of better and cheaper deals.  

And today's unemployment figures make welcome reading, having dropped for the first time in 18 months. It now stands at 2.46 million in the three months to November. That's 7,000 less than the previous quarter.

If it wasn't for yesterday's inflation report spoiling the party by instilling a renewed fear of Base Rate increases, I'd be tempted to think things were back on the up and up. Read Neil Faulkner's Rising prices: the greatest threat to your finances to find out more about the impact of yesterday's inflation announcement.

Of course, the ongoing crunch in the wholesale mortgage funding arena puts the dampeners on things too. Last year saw minimal improvements with a couple of high profile securitisation deals, but lenders' funding problems are not expected to ease significantly in the foreseeable future.

However, there is so much good news doing the rounds it's hard to be glum. Just look at the housing market for example:

Positive on property

Last week's figures from the Department for Communities and Local Government (DCLG) showed that property prices in November were a 0.6% higher than a year earlier. They had risen significantly by 3.5% compared to the previous quarter and 1.7% from October. The average house price now stands at £200,454 according to the DCLG.

On the same day the Royal Institution of Chartered Surveyors noted increased house prices during December, albeit rising at a slower pace than the previous month. It said that 30% more chartered surveyors reported a rise than a fall in house prices, down from 35% in November. This slower pace can be put down to the Christmas break, says RICs, and predicts increased New Year activity in the housing market.

But what is particularly encouraging is that the report highlighted the fact that the number of new instructions has increased for the seventh consecutive month. So while demand for property is still rising, and still outstripping new supply, the gap has narrowed.

This casts a shadow on the argument that it is solely lack of available properties that is sustaining rising prices. It's clearly a factor, but a growing confidence is returning to the market, as well as a growing number of mortgage deals making it possible for more people to buy.

More cash for council houses

Other encouraging news last week was the announcement that the Government has doubled the cash available for new council homes.

Housing minister, John Healey, announced that with the largest council house building programme for nearly 20 years already underway the Government would add another £122.6 million to the pot. This money will help build more than 4,000 new council homes for 8,000 people.

I'm not suggesting that this is enough to plug the enormous housing gap in the UK, especially in social housing. In fact Halifax states in a recent report looking at the housing market over the last 50 years that 44% fewer houses were built in 2009 (157,000) than in 1959 (282,000). And the lender says this huge decline has been driven by a fall in public sector completions.

But what I am saying is that doubling the funding for new council homes is a positive move, and a step in the right direction.

Getting better for borrowers

The mortgage market has been improving gradually over recent months with lenders finally beginning to compete for business -- and 2010 has seen things really hot up, with lenders even offering some decent deals to those with a smaller deposit.

Not a day goes by without an announcement of new rates from a lender. This morning, for example, Yorkshire Building Society announced a new fee-free five-year fixed rate for consumers looking to borrow up to 90% of the property's value. The rate is 6.49% and as well as no arrangement fees there are also no valuation or legal fees, which makes the deal pretty competitive (although first-time buyers can do better on rate with NatWest's fee-free five-year fix at 6.39%).

And it was only last week that the lender reduced its fixed rates, with two-year deals now starting at 3.59% (up to 60% LTV) to 5.59% (up to 85% LTV). This is a good example of how quickly mortgage providers are updating their product ranges after the stagnant market we saw for much of 2009.

Who else has cut rates?

In the last week alone there has been a rash of announcements:

• On Wednesday, Woolwich reduced its tracker rates by up to 0.20% percentage points. The range now includes lifetime trackers at up to 70% LTV at either 2.63% (Barclays Base Rate + 2.13%) with a £999 fee or 2.99% fee-free.
• Yorkshire Bank reduced some of its rates on Monday by 0.30%, and announced it would offer one year's free building and contents cover worth up to £1,000 to remortgage and homemover customers. They can choose from £500 off arrangement fees if they prefer, until the end of February.
• Coventry has cut some mortgage rates by up to a whopping 0.54%. It's two-year fixed rates now look especially tasty at 3.45% up to 65% LTV , 3.55% fixed up to 75%, 4.85% up to 80% and 5.15% up to 85% (the latter for remortgagors only)
• Last week big boy Santander reduced its trackers by 0.5%, with the cheapest two-year deal now starting at just 2.59% up to 70% LTV for homebuyers (£999 fee).

Plus, more good news came from the Council of Mortgage lenders which announced that homebuyers in November needed to use less of their income to cover their mortgage interest than at any time in the last five years.

Home movers are enjoying the lowest debt burden of all, spending only 10% of gross income on their mortgage interest, the lowest figure for 13 years. First-time buyers spend just 14%, the lowest amount since 2004.

So mortgages are cheap as a result of record low interest rate (though this could change!); more deals are becoming available on a daily basis; those with smaller deposits are financially being better catered for; unemployment is down; and house prices continue their upward trajectory (even if a little more slowly over Christmas). 

What's not to smile about?

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Get help from lovemoney.com

If you need help getting the best mortgage use our resources.

First, adopt this goal: Cut the cost of your mortgage and pay it off early

Next, watch this video: Getting through the mortgage maze

Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

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