Chances of getting a mortgage improving

Mortgage approval numbers have jumped two months in a row.

Some new research from one of the nation’s biggest surveyors has found that things are starting to pick up in the mortgage market.

Mortgage approvals up!

According to e.surv Chartered Surveyors, November saw the highest number of mortgage approvals (on a seasonally adjusted basis) since the General Election, at 48,846. And it’s not just a one-off, with approvals rising in October too, the first month-on-month increase since April.

It's caused e.surv to be quite optimistic about the prospects for the property market next year. Given the constant dreariness from everyone associated with the mortgage market, why have things seemingly improved? And will it last?

A wider choice

One of the things that e.surv put the recovery down to is the increasing number of mortgages available to borrowers. There has certainly been a noticeable increase in the number of deals available over the past 12 months, as the table below from financial information site Moneyfacts demonstrates.

And it’s borrowers with smaller deposits that are seeing the benefit, which can only be a good thing.

Better deals

It’s not just the number of deals on offer that has improved – the mortgage rates are seriously attractive too. You can go for a tracker mortgage with extraordinarily low starting rate, below 2% in some cases, and do so with relative confidence as the chances of base rate moving up any time soon seem pretty remote.

And if like me you’d rather go for the safety and security of a fixed rate, the deals on offer are also very tempting. According to Moneyfacts, the average rates on offer on two, three and five-year fixed rates are all at their lowest point since the firm’s records began in 1988.

For more on the brilliant mortgages currently topping the best buy tables, for all sorts of borrowers, be sure to have a read of Christmas cracker mortgages whatever your deposit.

A little context

However, particularly when it comes to the number of mortgage approvals, it’s worth considering a little context before we get too excited.

The Council of Mortgage Lenders last month declared that the contraction in mortgage lending since 2007 has been the most severe on record. It highlighted that in 2008 and 2009 there were fewer than 520,000 loans for purchase approved – that’s lower than at any point since 1974! Indeed, given that in the preceding decade mortgage approvals stood at 1.2 million a year, approval levels have fallen by more than half, and are likely to finish at a similar level this year.

So it’s great that we’ve had a couple of months of improvement, but there is still a huge way to go.

Will it last?

The more important question though is how long this apparent revival will last. And that’s where things look a bit ropey.

The Council of Mortgage Lenders has published its forecasts for 2011, and it doesn’t make for great reading.

The trade body reckons that there will be around 860,000 property transactions next year, around the same level as the last three years but half of what we were seeing not so long ago. Gross mortgage lending will also remain flat at £135bn, down from £143bn in 2009 and £253bn in 2008.

In other words everything will be as it is, a difficult year with a stagnant property market and lenders not that keen on handing over their cash.

Reasons to be pessimistic

So why, given the recent improvement, do the lenders not think 2011 will be any better?

One of the big problems lenders face is that from next April, they will need to start paying back the funding they’ve enjoyed which has come from the Government, through the various support schemes. Obviously if the money is going back into Government coffers then that money cannot be lent to us, so funding for mortgages will be stifled.

That situation will only be made worse by new liquidity rules in the shape of Basel III, which requires lenders to keep more cash aside as cover when dishing out loans to borrowers with smaller deposits. In other words, it’s going to cost lenders more to lend at higher loan-to-values.

Lenders who fund their lending by attracting savers are also worried that with many households feeling the pinch, they won’t be able to save as much, further hitting lenders’ ability to lend.

A year of opportunity

However, while the market as a whole may struggle, there is still a little room for optimism in my opinion.

When conditions get tough, smaller, more nimble mortgage lenders will be in a position to be a little more creative, a little more inventive with the products they offer. There will be an opportunity for some less well-known lenders to step in and snap up business from those borrowers who are being ignored by the bigger banks and building societies that are so focused on cherry picking the very best borrowers. Just look at the way Yorkshire Building Society has consistently topped the best buy tables, usurping far more recognisable names.

So don’t be fooled into thinking that just because the bank on your high street isn’t keen on lending to you that you have no options.

That’s why brokers will be so important to many borrowers next year. They will have access to deals that the rest of us don’t, but just as importantly, they'll know how quickly you'll need to act if you want to snap up a certain mortgage, as the competitive deals from smaller lenders don’t tend to last for long.

You can research the market yourself using our innovative mortgage centre, but if you want to take advantage of our fee-free mortgage team they’re on hand to provide advice and guidance via email, instant messenger or over the phone.

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