Mortgage demand increases as rates continue to plummet

Demand for mortgages has soared in the last three months, as average rates for various kinds of mortgage continue to breach record lows.

Mortgage lenders have reported a ìsignificantî increase in demand for mortgages in recent months ñ a stark change from the sharp decrease in demand seen in the three quarters prior to march 2015.

The Bank of England reported that between February and May of this year, 193,400 residential mortgages were issued; higher than the 182,700 figure for the previous three months.

This increase in demand comes as various house builders and mortgage lenders are reporting a general improvement in the housing market, bolstered by increased availability of mortgages generally, and government schemes like Help to Buy.

Chief economist at HIS Global, Howard Archer, has emphasised the important role that buyer interest has played in this general upturn in the housing market, saying:

ìThe increase in demand for mortgages is reinforced by latest survey evidence ñ notably from the RICS [Royal Institute of Chartered Surveyors] and Rightmove ñ of rising buyer interest. It increasingly looks like the housing market is on the up after being in the doldrums during most of 2014 and the start of 2015.

ìWe expect housing market activity to pick up further during the second half of 2015, underpinning a modest firming in house pricesî.

The increase in demand has led to a price war between lenders that borrowers can enjoy the fruits of. Average interest rates on two-year fixes now stand at 1.83% – compared with the equivalent figure for 2009 of 3.98%. The lowest market rates for two-year fixed deals have been going down sharply as well, as lenders compete to offer the best deal. Chelsea Building Societyís record 1.08% deal was quickly beaten by Yorkshire Building Societyís 1.07% offering which was in turn swiftly undercut by the Post Officeís 1.05% – the lowest rate ever seen for two year fixed-rate mortgages.

While demand is increasing, mortgage lenders still expect gross lending to be roughly the same as it was last year. This is in part because, since the financial crash a few years back, the rate of mortgage approvals dropped sharply. It will take a while for the market to fully level out.

Itís not just mortgages that are seeing rates plummet to new lows though, research has found that rates available on personal loans are now at the lowest theyíve been since data started being collected in 1995.

All of this, and other factors, have led analysts to widely claim that we should be expecting an interest rate rise from the Bank of England later this year, up from the 0.5% level itís been at for the past 76 months.

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