What Will The Svr Increases (Ni Houses Prices?)

[Shotoflight]

Bel Tel & Helen come to the party a bit late

Rates hike lands new blow on negative equity home-owners

http://www.belfasttelegraph.co.uk/news/local-national/northern-ireland/rates-hike-lands-new-blow-on-negative-equity-homeowners-16153203.html

Siobhan McAleer, managing director of The Mortgage Shop, an independent mortgage broker which has 18 outlets province-wide, says: “The problem for people in Northern Ireland is that many home-owners cannot move because of low valuations. And those who are in negative equity will not be able to shop around for a better mortgage deal as they don’t have enough value in their property — you have to have at least 20%.

“Not only will they have to pay the mortgage on a house which has diminished in value, but they are stuck with the lender who puts up the rate.”

[2buyornot2buy]

Could this be because of those Momentum mortgages?

http://www.bbc.co.uk/news/uk-northern-ireland-17950899

[Shotoflight]

Nothing new but adds to the "mood music" for mortgage debtors and potential FTB's (that read the Independent!)

Householders pay the price as SVR mortgages soar

http://www.independent.co.uk/money/mortgages/householders-pay-the-price-as-svr-mortgages-soar-7715707.html

Edited May 5, 2012 by Shotoflight

[Shotoflight]

Don't be a mortgage prisoner

Home owners are increasingly being trapped with their lender as rules are tightened and new restrictions imposed.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9246545/Dont-be-a-mortgage-prisoner.html

Less publicised, though, were changes introduced by Nationwide Building Society – which has one of the cheapest standard mortgage rates on the market. It has now imposed new restrictions which mean many people moving home will be unable to take their low-cost home loan with them.

While Halifax has increased its standard variable rate (SVR) from 3.5pc to 3.99pc, Nationwide is unable to lift its SVR – currently just 2.5pc – because of its own terms and conditions.

However, mortgage brokers said these new restrictions on "porting" mortgage deals is one way of gradually moving people off these cheaper deals and onto more expensive home loans, where the lender has the flexibility to increase the rate.

David Hollingworth, a broker at London & Country, added: "If borrowers have a good rate, they will want to hang on to it. I think lenders have been asking themselves, why are we making it so easy for borrowers to keep hold of these rates, which are costing us so much money?"

It is a view shared by Fergus Macpherson, a broker at A1 Financial Solutions. He said: "Obviously, it is in lenders' best interests to get rid of cheap money, by getting it back in and punting it out at a higher rate."

In boom times, eager to keep customers, institutions allowed borrowers to take their loan with them when they moved house. Most offered generous terms and would enable borrowers to keep the terms of their mortgage – and waive any redemption charges – if there was a six-month gap between selling one property and buying another.

Today this is no longer the case.

In a note to brokers on Monday, it stated: "With immediate effect, we will no longer accept non-simultaneous porting applications where a client wishes to return to Nationwide having already redeemed their mortgage account."

Edited May 7, 2012 by Shotoflight

[Shotoflight]

Homeowners hit with biggest rise in mortgage costs since 2009

Homeowners were last month hit with the biggest rise in mortgage costs in almost three years despite interest rates remaining at a record low, according to Bank of England figures.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9258640/Homeowners-hit-with-biggest-rise-in-mortgage-costs-since-2009.html

Borrowers taking out two-year fixed rate deals, one of the most popular on the market, saw their average offer increase from 3.44pc in March to 3.65pc in April. It was the sharpest monthly rise since June 2009, and the seventh consecutive increase. As recently as September, a two-year fixed rate cost just 2.92pc.

According to Defaqto, a financial research company, two-year fixed mortgages now account for 30pc of all current offers compared with 20pc in 2007. With annual gross mortgage lending running at around £150bn, the rising costs may be affecting more than £30bn of lending. The Bank data also showed that the cost of three and five-year fixed rates rose last month by 0.14 points to 4.04pc and by 0.08 points to 4.28pc respectively, as lenders pushed through higher funding costs to customers. The average variable rate deal was unchanged at 4.1pc.

According to the Financial Services Authority, half of all new lending at the end of last year was fixed rate.

[2buyornot2buy]

BVI I'm just wondering which non-state owned bank is offering 95% loans on new builds and why you aren't pointing your customers in this direction? This must be the solution to low new build transaction levels. If raising deposits was the problem (as you suggested in another thread 20% was required) then these lower LTV products must be increasing your sales levels or is affordability having an effect?

[BelfastVI]

Guys, you credit me with too much intelligence! And I appreciate the further info and thoughts.

I'll try and clarify - I did leave out the 10% handback as I wasnt sure how it activated but it links to my query.

My assumption is that whowever dreamt up this scheme never thought prices would go down this far and they would never have to pay out (certainly not in 5 yrs as the market will have bounced back in that timeframe!!!!). So my view is that someone - developer/bank/insurer has miscalculated and is now left with a headache. My angle was on the sellers consortium, rather than the purchasers.

The scheme, in my view, was to show potential, nervous uncertian buyers that the experts had confidence along the lines of "look, we are so confident, not only will we pay your deposit but if prices go down by 10% we'll give you that back as well".

So the risk may well have paid off for the purchaser, to the tune of the first 10% of a depreciating asset but no more - notwithstanding they probably overpaid for the house in the first place as well (but what is the mechanism for repayment?) Must they sell to get it or do they just get it. And are all participant developers still solvent and able to pay.

I assume there is no argument that anyone buying under Momentum up to 12 months ago at the developers asking price will be more than 10% off, (and falling) and worse going back in time?

Why are the consortium still keen to promote it then if it partially covers further losses for the buyer but not the selling consortium? Are they expecting stability, a bottom and rises or is there so much profit to be made at their prices that a 15% hit is neither here nor there. Who does the valuing and are they constrained from further reductions in developments due to the knock on of earlier momentum customers. How many have taken up the scheme and what losses are the consortium currently nursing?

Conversley, as a serious purchaser, there is bound to be a time that the 15% cushion would have to be seriously looked at if prices are realistic, properties suitable and payout guaranteed. Probably around about the time that they withdraw it!

For earlier buyers a wait of a year or two may have been a better strategy, even with the inducements - but then not everyone can wait.

And as for the gimmick angle - what about this one:

Priced to Sell

The mortgage market can be confusing enough - I'm still not sure I understand this scheme thoroughly - hence the query.

They dont receive cash back. They get their mortgage srank by 10% and the 5% they still owe the Developer is no longer a liability if the house has devalued by that much. Remember this wasnt available during the boom rears as reported earlier but came out either 2008/2009.

It was a good scheme for the purchaser and if tha values have fallen, which in a lot of cases will then they will get debt forgiveness and good luck to them.

[BelfastVI]

BVI I'm just wondering which non-state owned bank is offering 95% loans on new builds and why you aren't pointing your customers in this direction? This must be the solution to low new build transaction levels. If raising deposits was the problem (as you suggested in another thread 20% was required) then these lower LTV products must be increasing your sales levels or is affordability having an effect?

The banks have to set aside too much captail (in their view) against higher L2V products as a result of the new lending restrictions. Therefore they want to lend more lower L2V as they get more bang for their buck.

As the government brought these rules in there are those that believe the banks are simply not lending at higher l2V rates to give the Gov a bloody nose. I dont know if this is correct but nothing would surprice me. Banks dont like regulation even though we all know it was the lack of it that caused the problem.

At the moment the only people who can get a 95% loan are the ones that can prove they dont need it (rich parents).

In saying that our sales last year have substantaily improved on the previous and this year, so far is ahead of last year. So far so good until Grease and Spain blow.

[Shotoflight]

They dont receive cash back. They get their mortgage srank by 10% and the 5% they still owe the Developer is no longer a liability if the house has devalued by that much. Remember this wasnt available during the boom rears as reported earlier but came out either 2008/2009.

It was a good scheme for the purchaser and if tha values have fallen, which in a lot of cases will then they will get debt forgiveness and good luck to them.

What a convoluted way to try and sell a house. A media report a couple of days ago stated NI was the most financially ignorant part of the UK (21% have no bank account against 11% UK) - no wonder with this sh*te.

A good deal perhaps for the buyer if they hunker down and sit tight - if they need to sell in the next few years, or even today, 15% wont cut it in terms of loss - LTV and neg eq will also become an issue, if not already visible.

Northern Ireland Worst In Uk At Managing Money (2007)

http://www.consumercouncil.org.uk/newsroom/402/northern-ireland-worst-in-uk-at-managing-money/

Julie Megrath, Senior Consumer Affairs Officer at the Consumer Council said: “People here are at greater risk of financial difficulties because we lag behind the rest of the UK in planning ahead, choosing financial products and staying informed about financial matters. Having the skills, confidence and information to manage our money is vital. Many people are not prepared if the washing machine breaks down or someone suddenly loses their job and would struggle to make ends meet.

The research also showed that people here are better at keeping track of their money. However, this is because fewer people have a current account and rely on cash to manage the household budget. So much so that low income households here are three times more likely to know how much money they had in their pockets down to the last £10 than those in the rest of the UK.

[Shotoflight]

The banks have to set aside too much captail (in their view) against higher L2V products as a result of the new lending restrictions. Therefore they want to lend more lower L2V as they get more bang for their buck.

As the government brought these rules in there are those that believe the banks are simply not lending at higher l2V rates to give the Gov a bloody nose. I dont know if this is correct but nothing would surprice me. Banks dont like regulation even though we all know it was the lack of it that caused the problem.

At the moment the only people who can get a 95% loan are the ones that can prove they dont need it (rich parents).

In saying that our sales last year have substantaily improved on the previous and this year, so far is ahead of last year. So far so good until Grease and Spain blow.

Europe is just the fast forward button.

There is enough crud in the system that needs flushed out from individuals, households, businesses, locally and nationally, to keep this thing sliding for the next 5 yrs - even with interest rates at 0.5% for the next 2 yrs and other forms of Govt interference.

The direction of travel is now well and truly established, the only variable is speed.

Whether the plates stop spinning one by one (soft landing) or all crash to the floor at once (hard landing) there is one thing certain - they will stop.

[BelfastVI]

What a convoluted way to try and sell a house. A media report a couple of days ago stated NI was the most financially ignorant part of the UK (21% have no bank account against 11% UK) - no wonder with this sh*te.

I don’t agree with your opinion.

If you are going to take out a mortgage you can take the standard one which remains the at the same level until you repay the capital. Or you can take the UB Momentum mortgage wiich, in the event house prices fall over the next five years will lower to a max of 15% below the purchase price.

You don’t have to take it, you don’t have to buy. But to me it is a very good project for the purchaser. It would be better if the amount of debt forgiveness was higher but it barely works for the industry as it is.

[2buyornot2buy]

I don’t agree with your opinion.

If you are going to take out a mortgage you can take the standard one which remains the at the same level until you repay the capital. Or you can take the UB Momentum mortgage wiich, in the event house prices fall over the next five years will lower to a max of 15% below the purchase price.

You don’t have to take it, you don’t have to buy. But to me it is a very good project for the purchaser. It would be better if the amount of debt forgiveness was higher but it barely works for the industry as it is.

But it's operated by a state own bank trying to keep prices artificially inflated. You said it yourself (or did you?) that non-state owned banks do not offer this level of LTV product on new builds.

RBS took the punt lending on these developments - just take the loss, write-downs and sell at MARKET VALUE. No need for 95% LTV through the back door. These sorts of lending practises got us into this mess.

You said banks require a 20% deposit for your own sites why would you want (with transaction levels being so low) a competitor to have an "unfair" advantage by being able to sell with a 5% deposit and for that competitor to be backed by the state?

[Shotoflight]

I don’t agree with your opinion.

If you are going to take out a mortgage you can take the standard one which remains the at the same level until you repay the capital. Or you can take the UB Momentum mortgage wiich, in the event house prices fall over the next five years will lower to a max of 15% below the purchase price.

You don’t have to take it, you don’t have to buy. But to me it is a very good project for the purchaser. It would be better if the amount of debt forgiveness was higher but it barely works for the industry as it is.

Price transparency and clarity at point of sale. Without the 5 yr lottery ticket. Obviously it is too much to ask for.

[BelfastVI]

Price transparency and clarity at point of sale. Without the 5 yr lottery ticket. Obviously it is too much to ask for.

The price is very clear at the point of purchase. You can take it without the compfort of the clawback. many do. Best for me the builder as it is our cash on deposit to support it.

[Shotoflight]

The price is very clear at the point of purchase. You can take it without the compfort of the clawback. many do. Best for me the builder as it is our cash on deposit to support it.

There is a margin of uncertainty of up to 15% of the price paid which will not be resolved for 5 yrs.

To the benefit of the purchaser? perhaps

Was that the expected outcome? perhaps not

[tinbin]

Cost of new mortgages on the rise as lenders seek to shore up their own battered finances

The cost of a new home loan has begun to creep up as mortgage lenders seek to shore up battered profit margins.

Banks and building societies are also raising rates in a bid to avoid becoming the most competitive lender left in the market, and subsequently being swamped by demand from buyers.

On top of this, the dire situation on the continent is pushing UK house prices down and making risk-averse banks demand larger deposits from buyers.

Last week, Halifax, Britain’s biggest mortgage lender, increased its fixed-rate mortgages by up to 0.3 percentage points, adding £27 a month to a typical £150,000 loan.

The move came despite the Bank of England base rate being kept at its record low of 0.5 per cent for the 38th month in a row. Banks are now passing higher costs on to customers.

The average two-year fixed-rate is now 4.49 per cent, the highest since August 2011, according to analyst Moneyfacts. Monthly repayments on a £150,000 home loan would be £833. Just five months ago, the average two-year fix was 4.10 per cent, with monthly repayments of £800 — £33 a month lower.

Richard Sexton, director at chartered surveyor E.surv, says: ‘Until early spring, banks did a good job of coping with increasing funding costs. But we’ve reached a tipping point now.

‘Banks can’t afford to sustain their current levels of lending. They are concerned about their exposure to debt- ridden European countries, and the precarious state of borrower finances.’

This week, HSBC withdrew its popular lifetime tracker at 2.79 per cent and increased other tracker rates by 0.2 points. Yorkshire BS increased fixed-rates by up to 0.3 points, while Loughborough BS withdrew its best-buy three-year fixed deals. Lenders are competing not to compete. Mortgage brokers say that once big banks start to increase mortgage rates, others follow suit so they are not left as the only lender with competitive rates.

Aaron Strutt, a mortgage expert at broker Trinity Financial, says: ‘Some lenders have become inundated with applications. This has led to processing delays and rate hikes.’

The average deposit on a house purchase loan has risen above 40 per cent for the first time since February 2011, according to E.surv.

This is because economists are worried house prices will slide this year, leaving homeowners vulnerable to negative equity — where someone owes more on their mortgage than their house is worth.

The Royal Institution of Chartered Surveyors warned last week that prices were set to weaken again, and figures from Halifax showed house prices fell 2.4 per cent in April.

Ed Stansfield, a property economist at Capital Economics, says: ‘Prices are still at high levels in relation to earnings and the economy is still very weak.

‘The outlook is, at best, a protracted period of slowly falling house prices

http://www.dailymail.co.uk/money/mortgageshome/article-2143091/New-mortgage-rates-rise-lenders-seek-shore-battered-finaances.html#ixzz1v21qvRmq

[Shotoflight]

BVI I'm just wondering which non-state owned bank is offering 95% loans on new builds and why you aren't pointing your customers in this direction? This must be the solution to low new build transaction levels. If raising deposits was the problem (as you suggested in another thread 20% was required) then these lower LTV products must be increasing your sales levels or is affordability having an effect?

May be of interest

How hard is it to get a 95% mortgage?

http://www.bbc.co.uk/news/business-18036859

The number of 95% mortgage deals on offer has risen sharply in the past couple of years.

According to the financial information service Moneyfacts, there are 58 deals around at the moment, from 22 lenders.

That compares with 29 deals a year ago and just 19 at the start of 2010.

But the reality is that very few people are being granted a home loan with just a 5% deposit.

And experts suggest that not only is it still hard to obtain one, it is possibly not very sensible either.

"If you can put down a 10% or 15% deposit, at least, it makes a substantial difference - your choice is so much better and you will get a much better mortgage," says Andrew Montlake of Coreco mortgage brokers.

"Generally speaking, the 95% mortgages are going to cost you between 5% and 6%, whereas other people are getting loans as low as half of that,"

Once upon a time, the 95% loan was the standard mortgage available to house buyers.

All that changed in the wake of the banking crisis that started in 2007.

Since then, banks have had far less money to lend.

And banking rules means that the smaller the deposit, and the riskier the loan, the more money they are required to put aside as a financial cushion against a possible default by the borrower.

The result has been severe mortgage rationing, especially for those people, typically first-time buyers, who can save only small sums of money for a deposit.

Statistics published by the Financial Services Authority (FSA) show that in 2011, just 0.36% of all new mortgage funds were lent to borrowers who provided a deposit of 5% or less of the purchase price.

[BelfastVI]

May be of interest

How hard is it to get a 95% mortgage?

http://www.bbc.co.uk/news/business-18036859

The number of 95% mortgage deals on offer has risen sharply in the past couple of years.

According to the financial information service Moneyfacts, there are 58 deals around at the moment, from 22 lenders.

That compares with 29 deals a year ago and just 19 at the start of 2010.

But the reality is that very few people are being granted a home loan with just a 5% deposit.

And experts suggest that not only is it still hard to obtain one, it is possibly not very sensible either.

"If you can put down a 10% or 15% deposit, at least, it makes a substantial difference - your choice is so much better and you will get a much better mortgage," says Andrew Montlake of Coreco mortgage brokers.

"Generally speaking, the 95% mortgages are going to cost you between 5% and 6%, whereas other people are getting loans as low as half of that,"

Once upon a time, the 95% loan was the standard mortgage available to house buyers.

All that changed in the wake of the banking crisis that started in 2007.

Since then, banks have had far less money to lend.

And banking rules means that the smaller the deposit, and the riskier the loan, the more money they are required to put aside as a financial cushion against a possible default by the borrower.

The result has been severe mortgage rationing, especially for those people, typically first-time buyers, who can save only small sums of money for a deposit.

Statistics published by the Financial Services Authority (FSA) show that in 2011, just 0.36% of all new mortgage funds were lent to borrowers who provided a deposit of 5% or less of the purchase price.

Thanks Shotoflight. Puts it all in perspective. 0.36% of an already low number is not alot of Mortgages. So despite what the banks like to tell the MLA's they are not lending at these ratios. A 95% loan or a 5% deposit is as low a deposit that even I would be comfortable with. The average FTB'er house is around £120k. A 5% deposit would be £6k, which seams a bit low.

I would expect as a minimum £8k and preferably £10k as a deposit. Thats perhaps a 8% deposit. Its still quite a bit for a purchaser to set aside on top of high rents.

We have cases where the banks are turning people down with £10k and £12k deposits. Everyone will have a different view on what normal lending was. When we were buying land in the good old days we preferred the 80/20 rule as it cut out 90% of the competition. When the banks dropped that in 2006/2007 we never got a look in (which saved our skins).

[2buyornot2buy]

Are rents high. Don't believe i've see evidence of this.

[Shotoflight]

The noose tightens

Mortgage lenders tighten criteria

A number of high street lenders have reduced their loan-to-values, slimmed porting options and raised interest rates in recent weeks

http://www.guardian.co.uk/money/2012/may/17/mortgage-lenders-tighten-criteria

Banks and building societies are introducing "stealth" changes to their mortgage ranges to make it harder for borrowers to qualify for loans, as well as increasing their interest rates.

Since the credit crunch lenders have been operating strict lending criteria, such as asking for much more detail about someone's financial situation, but in recent weeks they have been making small tweaks which are further reducing the number of borrowers who qualify for deals.

Halifax, for example, has restricted the availability of its two-year, fixed-rate loans for anyone wanting to remortgage via a broker. Whereas previously it offered deals of up to 85% of the price of a property, it will now only lend up to 75%. It has also reduced the number of two-year fixes for purchases, with the effect that anyone borrowing between 75% and 85% loan-to-value (LTV) will pay more.

This comes against a backdrop of economic conditions that mean mortgage rates will almost inevitably rise further. Yesterday, the Bank of England warned that the worsening eurozone crisis could mean that UK households will suffer higher interest rates.

"Lenders are now making a lot of stealth changes to make it tougher to get a mortgage," said Andrew Montlake of mortgage brokers Coreco. "Together with increasing their rates, they are carefully controlling their market share so they do not get deluged with business they can't cope with."

[Shotoflight]

Daily Mail. Even so.............

Borrowers warned to prepare for sharp rise in mortgage costs as euro crisis drives up costs for banks

http://www.dailymail.co.uk/money/mortgageshome/article-2145665/Mortgage-rates-set-rise-euro-crisis-pushes-banks-borrowing-costs.html

Homeowners should brace themselves for sharp increases in the cost of their mortgages, the Bank of England warned yesterday.

It is a bitter blow for Britain’s 11.2million mortgage holders and comes as a direct result of the chaos in the eurozone.

The crisis is driving up the cost of borrowing for high street lenders in this country – and they aim to ‘restore’ their profit margins by passing on that cost.

Cameron warns messy endgame for the euro could tip UK into ten-year depression

http://www.dailymail.co.uk/money/news/article-2145666/Eurozone-crisis-Cameron-warns-euro-endgame-tip-UK-decade-long-slump.html

Households face another painful squeeze this year after the Bank of England raised its inflation forecast and warned of rising mortgage costs;

[Shotoflight]

Pincer movement

Fitch warns UK banks may have to raise customer charges as global banks need to raise an extra $566bn

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9272596/Fitch-warns-UK-banks-may-have-to-raise-customer-charges-as-global-banks-need-to-raise-an-extra-566bn.html

Fitch said 29 “global systemically important financial institutions” including the state-backed Royal Bank of Scotland and Lloyds Banking Group, as well as Barclays and HSBC, would need to raise an additional $566bn (£357bn) to satisfy new Basel III capital rules.

[Shotoflight]

Thanks Shotoflight. Puts it all in perspective. 0.36% of an already low number is not alot of Mortgages. So despite what the banks like to tell the MLA's they are not lending at these ratios. A 95% loan or a 5% deposit is as low a deposit that even I would be comfortable with. The average FTB'er house is around £120k. A 5% deposit would be £6k, which seams a bit low.

I would expect as a minimum £8k and preferably £10k as a deposit. Thats perhaps a 8% deposit. Its still quite a bit for a purchaser to set aside on top of high rents.

We have cases where the banks are turning people down with £10k and £12k deposits. Everyone will have a different view on what normal lending was. When we were buying land in the good old days we preferred the 80/20 rule as it cut out 90% of the competition. When the banks dropped that in 2006/2007 we never got a look in (which saved our skins).

Money Insider: First-time buyers need the help of 95% mortgages

http://www.independent.co.uk/money/spend-save/money-insider-firsttime-buyers-need-the-help-of-95-mortgages-7789196.html

On a brighter note, Clydesdale and Yorkshire banks this week reaffirmed their continuing commitment to supporting first-time buyers and remain among only a handful of lenders prepared to lend up to 95 per cent of the property value. Last year these banks reported that around 13 per cent of approved mortgages were for first-time buyers with the average price of that first home coming in at £121,717.

The latest pricing changes see the 95 per cent LTV (loan-to-value ratio) mortgage from Clydesdale and Yorkshire cut to 5.99 per cent fixed for three years with the product fee scrapped. For those with a 10 per cent deposit, the rate has been cut to 4.99 per cent.

While the 95 per cent rate looks high when you compare it against the current 4.19 per cent deal from The Co-operative Bank for advances up to 85 per cent, regulatory constraints force banks to set aside between six and eight times as much capital reserves for high-value loans, hence some of the funding cost is passed on to the customer.

A lack of suitable, first-time buyer finance being made available during the last three years has fuelled the demand for rented property, and due to limited supply, rental costs are soaring.

The mortgage market remains subdued and there's little likelihood of this changing in the short term, and with the stamp duty concession no longer available, first-time buyers need all the help they can get.

To keep things from grinding to a halt, those who can service a 95 per cent LTV mortgage should be able to do so.

[Shotoflight]

Lending plans 'may put brakes on rates'

http://www.independent.co.uk/news/business/news/lending-plans-may-put-brakes-on-rates-7854630.html

Plans to revitalise lending could put the brakes on rising mortgage rates but people who already find themselves shut out of borrowing are unlikely to see a dramatic change, analysts said today. Household borrowing has remained sluggish in recent months with a trend towards people paying down their debts rather than taking out new loans amid the uncertain economy and tough employment conditions.

Mortgage lending plummeted in April, as the number of house purchase loans fell by 30 per cent month-on-month to 36,000 loans worth £5.3 billion, figures released yesterday by the Council of Mortgage Lenders (CML) showed.

The drop has in part been put down to the ending of a two-year stamp duty concession for first-time buyers in March, which lenders and estate agents say has distorted the market. But lenders have also been tightening their borrowing criteria amid the weak economy and the continuing eurozone crisis, which has made it tougher for people to take out a mortgage and triggered a drop in the proportion of approvals.

They have also been raising their mortgage rates in recent months for both new borrowers and more than a million existing ones, blaming the increased cost of funding a mortgage.

Vicky Redwood, chief UK economist at Capital Economics, said that the new measures may simply act to stop rates rising further.

She said: "It will make a difference but it could just be that these measures stop mortgage rates and business rates from rising further, rather than bringing about falls. "Banks have faced increases in costs which they haven't fully passed on yet."

The rate for two-year fixed deals for people with just a 10 per cent deposit increased by 25 percentage points from April to 6.04 per cent, the highest rate since January 2011 and a figure which has also been steadily rising since last autumn.

Other types of household borrowing have also been weak. Credit card lending contracted by the biggest monthly amount since 2006 in April, with repayments outstripping new borrowing by £118 million.

There have also been signs that people are dipping into their savings to cover high living costs rather than taking out new credit.

Recent figures from the Building Societies Association (BSA) showed that withdrawals from accounts in April outweighed new saving for the fifth month in a row.

[Shotoflight]

On the other hand.......

Banking reform could signal increase in cost of mortgages and bank services

Government plans to protect taxpayers, by separating banks' retail and investment banking arms, could mean rise in charges

http://www.guardian.co.uk/money/2012/jun/14/banking-reform-increase-cost-mortgages

Government plans to force UK banks to ringfence their retail operations from their investment arms are likely to push up the cost of banking services and mortgages.

Kevin Mountford, head of banking at Moneysupermarket.com, said the proposals could have a sting in the tail, as they could mean "institutions will no longer be able to cross subsidise their businesses with profits from investments funding retail operations".

This could not only result in banking charges being introduced for all customers, but higher charges for borrowers, he said. "If banks cannot use this revenue to subsidise their retail businesses, we could expect to see the cost of consumer borrowing driven up, and this could even signal a move towards the end of free banking as we know it. There is no doubt that the cost of adopting these policies will mean the customer will likely pay more for their services."