Martin Taylor, an external member of Bank’s Financial Policy - TopicsExpress



          

Martin Taylor, an external member of Bank’s Financial Policy Committee, said the tendency for borrowers to take on longer mortgages was also a concern, as there would be very little room for manoeuvre should difficulties arise. “One of the things that surprised me is to see how long mortgages have got,” he said. “In the Nineties a mortgage was between 20 and 25 years – now its often 30 and 35. The beauty of a short mortgage term was if a borrower got into trouble it was reasonably easy for the bankers to show forbearance by lengthening [the term]. With where we are now, even with people working into their 80s it has become more difficult.” If banks were unable to lengthen terms, overstretched borrowers on 30-year contracts whose incomes fell might be forced to sell their homes or face the prospect of repossession. Rising interest rates, which add hundreds of pounds to monthly mortgage bills, would cause similar problems. Mr Carney said: “This is one reason why when youre considering powers of direction for the bank over composition of [lenders’] mortgage portfolios this is relevant to that debate which will be before Parliament.” Around four in ten home loans are being issued for longer than the typical 25 years, figures show. Adrian Bailey, deputy governor of the Bank of England, said “If you look at other countries, Sweden has very long mortgages, ridiculously long. They also have a welfare system that means that lifetime income is more reasonably distributed. If mortgages extend beyond the point at which peoples incomes fall off, then we have a problem.” Official figures published separately yesterday showed that house prices have risen 10.5pc in the past year, driven by a record 20.1pc rise in London. The average home in London now costs twice as much as properties in the regions, the Office for National Statistics said. House prices in the capital increased a record 20pc in a year to £492,000 – double the £233,000 average for the rest of the country. Experts said the data was evidence that the property market in the capital had moved from “hot to the hyper”, stoking fears that interest rates, frozen at 0.5pc for more than five years, may need to rise sooner than expected. The ONS also reported that the rate of inflation rose unexpectedly from 1.5pc to 1.9pc in June. Mr Carney told the Treasury select committee that rising indebtedness and risky mortgage lending could “tilt the economy into recession”. This was why the action taken by the Bank so far was vital. But he said the Bank would not target a reduction in house prices. Campbell Robb, chief executive of Shelter, said: “Once again these figures show that house prices are spinning out of control, putting a stable home even further out of reach for ordinary families. “With interest rates at historic lows, it is worrying that taking on huge mortgages is becoming a tempting option, and something that could have disastrous repercussions in the future. Alexander Gosling of estate agents Housesimple.co.uk said: The London property market has moved from the hot to the hyper. Talk of price rises in the capital going off the boil is clearly premature. Howard Archer, an economist at forecaster IHS Global Insight, said he expected prices to rise by another 4pc this year and by 6pc or 7pc next year. At the moment, house prices still look more likely than not to see clear increases over the coming months, although it is looking increasingly probable that there will be some easing back in house price gains from the recent strong increases, he said. Escalating values over the last 12 months, combined with conservative lending policy, have shut many prospective first-times buyers and young families out of the market, meaning the biggest group of movers are likely to be equity rich, third-time buyers, the Rightmove report found. “We forecast a slower-paced second half of 2014. But with bigger-deposit, third-time movers entering the fray and lenders still having lending targets to meet, there is still enough momentum to see an 8pc national average increase in new seller asking prices,” said Mr Shipstone. This house price wobble is seen by the property portal as a seasonal dip during a traditionally quiet time of the year, that will pick back up in September, driven by a lack of housing stock. A new report from online estate agent, eMoov, which is backed by former BBC Dragon, James Caan, found that the South-East’s supply crisis is spreading to other parts of the UK. The latest Hot Spots index found that 75pc of the homes put on the market in the London borough of Bexley, in Q2, have sold, showing that the area is dangerously close to running out of supply. Over-inflated prices in London, which are not matched by wage growth, have resulted in people buying further out to get more for their money. The Index, which lists the top 99 most popular areas in which to buy, showed that Bromley has moved from 18th place in the index to sixth, with 62pc of its stock snapped up. Commuter city, Milton Keynes, has also benefitted from the London exodus, and was elevated from 25th to fifth, while the previously-fashionable pockets of Islington, Hackney and Haringey have all slipped in popularity, deemed too expensive. Following a long term regeneration project, Portsmouth is edging towards a supply issue - with 63pc of its stock bought in Q2, compared to 55pc in the three months of January to March. Bristol showed a similar level of appeal. “A supply-demand ratio of under 50pc is detrimental. That’s the tipping point between a sellers’ market and a buyers’ market. Conversely, when we see areas achieve ratios of 65pc plus, they tend to be overheating and that impetus is unsustainable which is why we’re seeing just about all London areas cool,” said Russell Quirk, founder of eMoov. “There’s a regeneration theme here too. We see that the old adage build it and people will come’ seems very true.” But development across the UK has slowed in the last few months due to a lack of available land. “When they [good quality sites] do become available there is now a stampede of both domestic and overseas developers wanting to buy...Often overseas investors who don’t know the market so well, overbid for the site, so the domestic developer misses out,” said David Galman, director at Galliard Homes. “The market has been strong, most of the stock is sold, which has left most London developers now desperately looking for new sites.” dhhmortgages.co.uk/
Posted on: Fri, 01 Aug 2014 07:00:00 +0000

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