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Mortgage Lending Increases But Rates Do Too!

by Alison Feemantle

Figures released by the Buildings Societies Association (BSA) show a rise in gross mortgage lending of 32% in January and the report goes on to call this rise ‘significant’. However, any optimism felt as a result of these findings may have been tempered by the announcement that both the Halifax and Royal Bank of Scotland were increasing their interest rates, blaming increased funding costs.

The BSA’s figures showed that the 32% rise resulted in an increase in lending from 1.4 billion to 1.9 billion from the previous month and this represented a rise of 54% on the findings declared for the same period in 2011. However, the stamp duty window, which is being cited as a reason for most positive signs in the property market is also being credited for much of this increase.

The window closes later this month and it’s widely accepted that any spike in lending and sales is down to a rush of homeowners looking to take advantage of the waiving of the 1% fee for properties between £125,000 and £250,000.

“Lending activity by mutuals was up significantly in January compared to the same month last year, continuing the trend of increased lending by the mutual sector seen throughout 2011,” said Adrian Coles of the BSA.

The news comes shortly after the association reported a two year high in mortgage approvals which had risen in January by 7% to 58,728. However, the Council of Mortgage Lenders rather summed up the current position, claiming that the figures were slightly obscured by the Stamp Duty Holiday.

“We are now likely to see an unhelpful bunching of activity prior to the concession’s expiry, followed by a dip,” the Council said.

That dip could also be affected by a rise in mortgage rates which has been led by Halifax and the RBS, both of whom announced their increases last week.

Halifax announced that it would be raising its variable rate from 3.5% to 3.99%, adding that the process of raising money through retail savings and wholesale markets was proving to be very expensive. Meanwhile, the RBS confirmed that it was raising the rate on two of its products by 25 basis points.

The two lenders have already been joined by Santander in increasing its own rates and more are expected to follow.

“If lenders continue to raise their rates those with the smallest deposits – the first-time buyers – will get hit hardest, because the risk they pose means they cost more to lend to,” said Mark Harris at broker SPF Private Clients.

As with much of the current announcements within the property market, it appears that the true picture won’t be known until the stamp duty holiday ends and any increase in rates takes hold.

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