Market Update

According to the CML, the number of loans handed out for house purchases in the UK rose by 16% in April compared with the previous month. However the figure remains 28% down on the same month the previous year. The data is bound to add further evidence to indications of a spring bounce in the housing market.• In April, the average amount borrowed by first-time buyers for a home loan rose slightly to £96,000 - the first rise since May 2008.The data is the final set of figures relating to the state of the mortgage market in April, and effectively echoes lending data from earlier surveys. The figures confirmed a rebound in the popularity of fixed-rate mortgages, with many predicting that interest rates are unlikely to fall further. • In January, 48% of new home loans were fixed-rate deals but this proportion rose to 69% in April. • The average rate charged on those deals in April - of 4.83% - was the lowest paid since January 2004. • The number of loans for house purchases stood at 35,500 in April. • The number of people remortgaging dropped to 31,000 - down 22% compared with the previous months and a fall of 65% compared with a year earlier.Unfortunately this comes at a time when many lenders will be increasing their fixed rate offerings following the sharp increases in Swap rates over recent weeks.The Bank of England has said negative equity among home owners might have exaggerated the speed with which the UK economy fell into recession. Its Quarterly Bulletin says negative equity can undermine the solvency of lenders as well as depressing borrowing and spending by home owners. • Negative equity affects between 700,000 and 1.1m households, the Bank says, though they admit that there is no exact measure of the size of the problem.The Bank's main concern is about the effect of bad home loans on the stability of the banking system itself. "Large losses on mortgage loans and associated securities can erode banks' capital positions, affecting both lenders' willingness and ability to lend and, in extreme cases, their solvency," the Bank says. The bulletin suggests that negative equity may have amplified the speed and scale of the economy's fall into recession during the past year as banks, worried about potential losses, reined in their lending to both individuals and companies.Its bulletin points out that the amount of money the UK's biggest banks have lent in the form of home loans, is five times the value of their shareholders' capital and reserves, known as Core Tier 1 capital. And in turn, 40% of all mortgage debt has been packaged up and sold to raise even more loans from the banking system, thus spreading the risk of losses around the banking system far beyond the original lenders. However the bulletin avoids making any prediction about how much worse negative equity, and its effect on the banking system, will become, but it does point out that the scale of negative equity is similar to that of the early 1990's.The problem has emerged much more quickly, because of the very sudden fall in house prices from their peak in the middle of 2007 to the first quarter of 2009. • Between the middle of '07 to 1st Quarter '09 UK house prices fell by about 20%, whereas it took six years for them to fall by 15% between 1989 and 1995.The Bank acknowledges that negative equity can pose a myriad of problems for households in that position if they are in financial difficulties, as it makes it harder for them to sell up and move, or to borrow against the value of their homes to pay off other debts, or to finance normal household spending during a period of unemployment. There is a slight ray of hope this time around though in that so far the level of mortgage arrears and repossessions has been far lower than that of the early 1990's, partly due to the very low level of interest rates now prevailing, which have slashed many homeowners' monthly repayments.According to the ONS, new construction orders for April have provided further tentative evidence that the worst of the downturn in the economy may have passed.• Total orders rose for the second consecutive month to stand 26% above the February low, although in the three months to April, orders were still 8.7% lower than in the previous three month period.Meanwhile, in the housing sector alone, orders in private housing have jumped 57% over the past couple of months. "Although in terms of actual numbers this still represents a low level of activity, the improving picture is consistent with reports from house builders that they have seen inventory levels being run down of late," said RICS chief economist Simon Rubinsohn.