As of December 2016, the average incomes for those applying to borrow for a home purchase or a remortgage have fallen annually by 8.13% and 8.9% respectively. This suggests that more households are now able to borrow to either buy their next property or refinance their existing home than previously. The probable reasons for this positive emerging trend are:
• Record low interest rates: Sustained intense competition within the provision of lending products and pricing has ensured interest rates have remained at or around record lows
• Lender flexibility: Lenders continue to ensure affordability at all costs, however some easing of criteria and improved affordability assessments has resulted in potentially more borrowers getting access to mortgage finance.
Brian Murphy, Head of Lending for Mortgage Advice Bureau comments, “When we look at the downwards movements in salaries, e.g. for first time buyers, remortgage and home mover purchases, this perhaps indicates that lenders are being slightly more flexible and accommodating in terms of salary multiples. Mortgage rates are lower than they were 12 months ago, therefore affordability has improved, meaning that salaries don’t need to be as high as they were a year ago in order to borrow the amounts required by consumers, and this may be reflected in the slight downwards movements in average salaries.
Overall activity was still strong in December, considering seasonal factors and overall political and economic climate. It was interesting to see that overall housing transaction levels for 2016 were steady at just over 1.2m, a slight increase on volumes in 2014 and 2015, as noted in the latest HMRC residential transaction data.
2016 has again seen several new lender brands enter the market, which has triggered an even more competitive interest rate environment, meaning that every type of borrower has benefited from lower rates, particularly since the interest rate cut in August. However, as there has been some upward pressure on Swaps, it’s possible that going into 2017 we may see some upward movement in terms of fixed rate pricing, but with competition intense, many lenders may be prepared to sacrifice margin to maintain volumes and market share.
With regards the average Buy To Let purchase price, a downwards movement both month on month and year on year is to be expected, as lenders applied the latest PRA rental stress test calculations in December. This led to some landlords being priced out of the more expensive areas due to not being able to meet income coverage ratio (affordability) criteria, meaning that they have purchased in cheaper areas.
In terms of the monthly change of the average first time buyer purchase price, this is likely to be as a result of seasonality; due to the fact that first time buyers are chain free, vendors who are selling to a first time buyer are likely to have taken a slight reduction in their asking price in order to tie up a chain, particularly if they wanted to complete before the festive break.”
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