Northern Rock has revealed the enhanced competitiveness of its product range has seen mortgage applications jump by 70% in March, with the average loan to value of new lending just 48%.

The nationalised bank has published its trading statement for the first quarter, confirming gross mortgage lending for the first quarter was just £550m, with this representing mortgage completions in the period and not yet reflecting the impact of the planned increases in mortgage lending.

Mortgage redemption rates have slowed significantly, and are running at around half the average rate of 2008. The bank said its debt management strategies are beginning to pay off, with its stock of unsold repossessed properties falling from 3,620 in December 2008 to 3,200 at the end of March.

However, residential arrears over three months have increased to 3.67% from 2.92% in December. Northern Rock said it had noted tentative signs of improvement in early arrears trends, reflecting the investment in its debt management capability and improved affordability levels as a result of falling interest rates.

Gary Hoffman, chief executive at Northern Rock, said: “We are implementing our new business plan, which will enable us to move forward with our lending programme. The revised state aid application has been submitted and we are making good progress with the legal and capital restructuring of the business – which we expect to complete in the second half of the year.

“The economic environment remains difficult but our trading performance in the quarter was in line with our expectations and we saw some early signs of mortgage applications increasing in March, reflecting pricing adjustments to our current product range.”

Source:  Your Mortgage UK

The Council of Mortgage Lenders (CML) has welcomed the implementation of a Government measure designed to reinforce lenders’ policies of forbearance for borrowers facing temporary and resolvable mortgage repayment problems, to minimise repossessions.

Lenders’ actions, supported by debt advice, help develop affordable repayment plans for borrowers committed to getting through short term financial difficulties. Repossession is a last resort.

Lenders already show significant forbearance to borrowers facing temporary difficulties, to enable them to keep their homes where this is possible. This core principle is already underpinned by regulatory rules and industry guidance. The scheme is a helpful additional tool - although the CML does not expect that the guarantee will be triggered in many cases, as the scheme is aimed at borrowers who expect to be able to resolve their difficulties and resume full mortgage payments within a year or two.

Some lenders have confirmed their participation in the home-owner mortgage support scheme (HMS) under which the government will provide a guarantee in some circumstances against part of the risk of future loss that lenders face by allowing borrowers to under-pay on their mortgages for a temporary period.

Other lenders have concluded that, while they support the principle of reasonable forbearance, they would prefer to help their borrowers outside the scheme and without calling on government financial support. The CML sees HMS as simply one means to an end. What matters is how lenders are working with their borrowers through periods of difficulty where they believe these can be resolved, not whether they are using HMS in itself.

CML director general Michael Coogan said: “Lenders are working strenuously to keep borrowers in their homes where they have a good prospect of being able to get back on track and sustain their home-ownership in the long term. The government is helping, through changes to Income Support for Mortgage Interest, the mortgage rescue scheme, and now the home-owner mortgage support scheme.

“Lenders fully recognise their responsibility to keep people in their homes where repossession can be avoided. The fact that some lenders are utilising the new scheme and others are not indicates simply a difference in their approach to forbearance, not in their commitment to it.

“It is likely to be some months before it will be possible to assess the impact of the various industry and government measures. The CML expects to be able to update its forecasts on arrears and repossessions, taking into account these measures as well as the prospects for employment and the wider economy, over the summer. Current forecasts are for 75,000 repossessions this year and 500,000 mortgages in arrears of three months or more at the end of the year.”

Statistics show that fixed rate mortgages soared in popularity in the first three months of the year.

According to a new index by mortgage brokerage John Charcol, the proportion of borrowers choosing to fix their interest rate shot up from 29.1% in December 2008 to 47.8% in January, 67.4% in February and 80.9% in March.

The results are a clear indication that mortgage borrowers expect interest rates to rise in the future. The Bank of England Base Rate is currently at an historic low of 0.5%, but the Government’s ‘quantitative easing’ measures are widely expected to boost inflation in the future, necessitating rises in interest rates.

“The increase comes as a result of a combination of several factors, the most obvious being that with Bank Base Rate now at 0.5% there is only one way for it to go – the only questions being the timing and the scale and speed of the increase,” commented Ray Boulger of John Charcol.

Boulger also believes that the extremely large margins being charged on tracker mortgages have also pushed more borrowers to plump for a fixed rate.

Tracker mortgages are currently typically being charged at around 3% over the Base Rate, which is reasonably attractive at present but could get very expensive when Base Rate rises.

The most competitive fixed rates now available are priced between 3% and 4% for two and three year fixes while the best tracker rates are around 2.25% to 3% over Bank Base Rate giving a current pay rate of 2.75% to 3.5%.

The John Charcol index reveals a big jump in the number of mortgages taken out to buy property compared with remortgages, and a significant increase in the number of first-time buyers applying for homeloans.

Andrew Hagger of comparison website Moneynet.co.uk warned that once the UK housing market revives, competition between lenders will increase, with many offering ‘gimmicks’ which will make it tricky to calculate which is really the cheapest mortgage.

“It is vital that would be borrowers, whether first time buyers, remortgagers or movers check the true cost of any deal before signing on the dotted line,’”he said.

“With a range of rate/fee combinations, there is no one deal that fits all, and with fee-free and percentage fee deals only adding to borrower confusion, finding the true cost of a mortgage is key unless you want to be needlessly pouring money down the drain.

“Don’t assume that a low rate or no fee deal is best. It’s essential that borrowers always compare the total cost of the mortgage they are looking at and not be swayed by a low rate or no fee deal,” added Hagger.

Reported by Your Mortgage & Remortgage

BBC News has recently reported that Mortgage lending picked up in March, according to figures from the Council of Mortgage Lenders (CML).

Gross lending stood at £11.5bn, up by 16% from February but still less than half the amount lent in March 2008.

Earlier HM Revenue & Customs (HMRC) figures showed there had been a 40% jump in home sales in March.

The CML said the March increase was a normal seasonal rise and warned that lending and house sales would remain low for the “foreseeable future.”

Despite the jump in March, the lending figures for the first three months of the year were the lowest for any quarter since the start of 2001.

However Michael Coogan, director general of the Council of Mortgage Lenders (CML) said the latest figures were a step in the right direction.

“It’s a seasonal factor here that people start to look around to move house in the middle of the better weather,” he said.

“What we said at the beginning of the year was that we expected over the course of 2009, £145bn to be lent, and we are on track with that forecast, and that has to be compared with £363bn in 2007,” he added.

Picking Up

A growing number of indicators now suggest that sales may have hit rock-bottom after the dramatic slump of 2008, and could now be starting to rise.

The HMRC’s figures showed 60,000 property sales in March worth at least £40,000 each, compared with 43,000 in February.

The number of mortgages approved but not yet lent, a key indicator of future activity, has also risen recently according to the Bank of England.

And during the past few months estate agents have been reporting a rise in the number of enquiries from potential buyers.

“House price activity is beginning to pick up to a limited extent in response to the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates,” said Howard Archer, chief economist at IHS Global Insight.