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The spring rise saw mortgage lending reach its highest level this year

Mortgage lending continued its spring rise into May, according to the British Bankers' Association (BBA).

The number of mortgages approved for house purchases rose to its highest level so far this year.

A total of 36,709 loans were approved by the major banks for people buying a property during the month.

However figures from HM Revenue & Customs (HMRC) show that completed property sales have been flat for the past three months.

Sales in May stood at 73,000, just 1,000 up on the number sold in both March and April.

Though higher than a year ago, the figures mean that sales so far this year are still running at less than half the level recorded in the same period during 2006, 2007 or 2008.

'Pay off borrowing'

The BBA, whose members account for 75% of new mortgage lending, said it was the third month in a row of rising mortgage approvals.

Households continue to pay off debts, according to the BBA.

"The low interest rate environment is resulting in customers choosing to reduce or pay off borrowing, particularly personal loans, rather than saving," said the BBA's director of statistics, David Dooks.

Re-mortgaging accounted for the lion's share of loan approvals with 24,626 taking out new or replacement loans on their existing property.

The number of home loans approved for house purchases had been 35,729 in April, up 685 on March.

A new level of 28% for capital gains tax will be paid by higher rate taxpayers from midnight.

Chancellor George Osborne announced the new rate in his Budget speech, but it was not as high as some commentators expected following extended debate about potential changes.

At present, there is a flat rate of 18% to be paid when people sell, give away or dispose of shares or property.

This will remain for lower and middle income earners.

The move was welcomed by Labour's acting leader Harriet Harman.

'Unfair'

The capital gains tax regime was described by the chancellor as one of the "most chaotic" tax regimes that it had inherited.

"Some of the richest people in this country have been able to pay less tax than the people who clean for them," he said.

He said that some people had taken advantage of the system by turning some of their income into capital and paying less tax as a result.

The chancellor expected the measure to bring in an extra £1bn - mainly through income tax as people would not shift income to capital.

"My concern has been to balance the competing demands of fairness, simplicity and competitiveness - and I believe my decision gets that balance right," he said.

However Ronnie Ludwig, of accountants Saffery Champness, said that some people who sold second homes recently, expecting a big capital gains tax rise, might not have done so had they known it would go up by 10 percentage points for some.

He described the change as "watered down" compared with what was being discussed in recent months.

"Many who expected capital gains tax to rise to 40% or 50% rushed through sales of second homes or share portfolios. Those individuals may now rue that decision," he said.

Some higher rate taxpayers might also simply transfer properties and other capital into their spouse's name - if they were lower rate taxpayers - in order to avoid paying the 28% rate.

Allowance

HM Revenue and Customs explains that you pay capital gains tax when you dispose of an asset you own, whether in the UK or overseas.

This can be when it is sold, given away to someone, transferred to someone else, exchanged for something else, or compensation received for it - such as an insurance payout after an asset has been destroyed.

The tax is paid on the gain - or profit, not the value of the asset itself. However, there is a tax-free allowance on the first £10,100 of any gains which would remain the same this year and rise with inflation in subsequent years, the chancellor announced.

Much of the debate in the build-up to the Budget was whether there would be a system which saw the rate come in steadily - a tapering system. However, the chancellor ruled this out - claiming it would add too much complexity.

Chris Sanger, head of tax policy at Ernst and Young accountants, said: "Overall, the top rate is not as high as many will have feared but the lack of indexation could mean that many will pay tax not on gains but on inflation."

The 10% capital gains tax rate for entrepreneurs, which currently applies to the first £2m of qualifying gains made over a lifetime, will be extended to the first £5m of lifetime gains.

Prices are rising at their fastest rate since the autumn of 2007

Annual house price inflation is back in double-digits, according to government figures.

The Department for Communities and Local Government (DCLG) said prices in April were 10.1% higher than a year ago.

That was the highest rate of inflation since October 2007, when prices were on a downward trend.

UK house prices rose by another 0.4% in April, putting the cost of the average UK property at £207,516.

Annual house prices rose in all UK countries except Northern Ireland in the year to April 2010, the DCLG said.

Annual house price growth was 10.9% in England, 2.2% in Scotland and 11.3% in Wales.

But in Northern Ireland prices fell by 8.9% on average in the year to April.

Mortgage lending

Separate figures from the Council of Mortgage Lenders (CML) show that mortgage lending this year has been modest.

It said the number of loans granted to home buyers fell by 9% in April to 40,000.

The CML explained that this was a seasonal effect due to the Easter holidays, and said lending was still 15% higher than a year ago.

"Lending for house purchase still looks modestly positive compared to 2009," said Michael Coogan, director general of the CML.

"First-time buyers were particularly affected, perhaps because of the alteration to stamp duty, and in anticipation of the changes arising from the economic and political uncertainty of recent months."

However the proportion of loans made to first-time buyers was just 35% of the total - the lowest figure since September 2007.

With only a gradual easing of mortgage rationing in the past few months, first time buyers are still having to put down an average 25% deposit when buying a new home.

"The low share of the market shows that getting a mortgage remains problematic for first-time buyers who tend not to have a substantial deposit," Mr Coogan said.

Andrew Montlake, of mortgage broker Coreco, said: "Even taking into account the traditional Easter dip in activity, the figures for first-time buyers are still disappointing, and highlight how difficult it remains to secure finance without a sizable deposit."

Most surveyors expect sales to rise in the coming months

More homes are being put up for sale in England and Wales because of the abolition of Home Information Packs (Hips), surveyors say.

The latest survey from the Royal Institution of Chartered Surveyors (Rics) found a "sharp increase" in new instructions from would-be sellers.

Twenty-two per cent more surveyors reported a rise in prices than reported a fall in the three months to May.

However, the number of completed sales fell by 5%, to just 17 per surveyor.

"Surveyors are generally confident that sales will continue to pick up over the summer months," said Rics spokesperson Ian Perry.

"The increase in supply as a result of the the abolition of Hips is helping to support this optimism, despite continuing concerns about mortgage finance.

"A higher level of instructions should, meanwhile, also lead to a flatter trend in house prices in the latter part of the year," he added.

More sales forecast

The suspension of Hips, as a precursor to their abolition, was announced by the new coalition government in May.

They had been introduced in 2007 as a way of speeding up the house buying process, but were described by the new housing minister Grant Shapps as "needless red tape".

Only the requirement for sellers to provide an energy performance certificate will remain.

Nearly three quarters of the surveyors in the latest Rics survey thought that the decision to do away with Hips would lead to more homes coming up for sale in the future, with the average surveyor guessing that the increase in supply would be about 15%.

The May survey also found a slight increase in the balance of surveyors reporting more potential new buyers as well - 10%, up from a positive balance of 9% in April.

Not surprisingly, surveyors also expect completed sales to rise in the coming months.

But activity in the property market has, in fact, been very subdued by historical standards.

Sales across the UK in the first four months of the year were 26% higher than in the same period last year, but were still less than half the level reported in either 2005, 2006 or 2007.

Most surveys, with the exception of the Halifax, say prices have been rising steadily though the first few months of the year.

Housebuilders suffered during the property market slump

Housebuilders could be hit by a massive drop in the number of new homes built in the UK, a new report suggests.

The National Housing Federation (NHF) said the number of new affordable homes built this year could slump by 65%.

Funding cuts and changes to the planning system could see as few as 20,390 homes built, the group said.

The NHF has written to Housing Minister Grant Shapps urging the government to honour its spending commitments on new housing schemes.

But Mr Shapps said: "Houses cannot be built by targets that don't work with money that doesn't exist."

He said the government was planning to introduce incentives for new developments and communities would be be able to "develop their own vision" for what they wanted built in their local area.

In the letter NHF's chief executive David Orr wrote: "The building of affordable homes could potentially grind to a halt this year - with all housebuilding, including private developer construction, falling off a cliff."

The cuts could have a "catastrophic impact" on housebuilding, the federation added.

The housing minister warned last week that around 150 social housing projects were under threat because of a £610m "black hole" in the government's finances, the group said.

'Rogue landlords'

Mr Shapp further countered the NHF's claims and said: "With £780m in unfunded spending commitments made by the previous administration, I have instructed the Homes and Communities Agency to conduct a review.

"And we have made £170 million available to build 4,000 otherwise unfunded social rented homes this year, safeguarding around 3,500 jobs."

Housebuilders suffered badly when the property market slumped during the downturn.

This is the second time in a matter of days that the government's housing policies have been called into question.

They came under fire after Mr Shapps announced on Friday that the government would be scrapping plans for tougher regulation of the letting industry.

A landlords register and new regulation of letting agents were to be introduced by the previous Labour administration.

The Association of Residential Letting Agents said cutting the plans would aid rogue landlords. Citizen's Advice also criticised the decision.

There is often a lift in the housing market during spring

Mortgage lending remained subdued in April, according to figures from the UK's major banks.

There was little sign of the traditional "spring bounce" as the number of mortgages approved remained relatively unchanged.

The number of home loans approved for house purchases stood at 35,729 in April, up 685 on March, the British Bankers' Association (BBA) said.

Households were concentrating on paying off debts, the BBA added.

Demand

Net mortgage lending by the major banks fell to £1.8bn in April, the BBA said. This was its lowest level since February 2001, and down on the £2.3bn of March and the average for the six months prior to April of £2.7bn.

The number of mortgages approved for house purchases was down on the previous six month average of 39,309, although the figure was higher than the same month a year ago.

The subdued level of lending is likely to be reflected in the level of house sales in the coming months.

Remortgaging and equity withdrawal approvals also fell in April compared with March, the BBA said.

Safety first

The figures point to a trend of consumers trying to live within their means - with people paying back more of their debts than taking on new debt.

Mortgage lending has been subdued in 2010

Net consumer credit lending shrank by £0.3bn in April. This was driven by loans and overdrafts where repayments outstripped new lending by £507m.

Demand for new loans in April was 18% lower than the same month a year ago. Credit card lending increased slightly in April.

"Household priorities are clearly reflected in these latest data, with people paying down debt rather than building up savings, even in the main Isa [Individual Savings Account] season," said David Dooks, BBA statistics director.

"Uncertainties about the impact of government policies and the economy on households and businesses will continue to dent consumer confidence and influence decision-making."

Howard Archer, chief UK economist at IHS Global Insight, said: "The ongoing muted BBA mortgage approvals data reinforce our suspicion that house prices will struggle to make significant gains over the coming months

"Housing market activity is limited, the economic fundamentals are still far from robust for the housing market, credit conditions remain tight, and house price to earnings ratios have moved back up."

Rental picture

He said more properties were coming onto the market, making the market more attractive to buyers.

Some of this new supply could have come from those who had previously been reluctant landlords, and who had been waiting for the market to pick up before selling.

A shortage of homes in the rental sector has pushed up average rents at the start of 2010, according to the Royal Institution of Chartered Surveyors (Rics).

Surveyors said, during the three months to April, 30% more of its members reported seeing rising rents than those who saw falls.

This was a gloomier picture for tenants than the previous quarter.

"With sellers back in the housing market, supply has fallen back in the letting sector," said Rics spokesman Jeremy Leaf.

"This is good news for landlords as rents are set to move higher in the coming months and yield returns are likely to improve."

Tenant demand was strongest in London and the East of England, where rents also increased the most.

The CML may revise its forecast in the summer, it said.

The number of homes repossessed in the UK fell by 7.5% in the first three months of 2010, according to lenders.

Figures show that the number of homes repossessed dropped from 10,600 in the last three months of 2009 to 9,800 in the first quarter of 2010.

This was also lower than the 13,200 of the same period a year ago, the Council of Mortgage Lenders (CML) said.

But many homeowners remained vulnerable to falling into arrears, the CML said.

It added that it could revise its forecast of 53,000 repossessions in 2010 in the summer, describing it as "pessimistic" if there are no further economic shocks.

'No complacency'

The number of homes repossessed was at its lowest in two years, down 7.5% on the previous three months and 26% lower than the first three months of 2009.

Low interest rates were the key to the dropping figures, allowing people - even those who have lost their jobs - to stave off the threat of repossession owing to low mortgage bills.

The figures also reveal that the proportion of mortgage holders getting into payment difficulties also fell in the first three months of the year.

The number of home loans in arrears equivalent to at least 2.5% of the outstanding mortgage balance stood at 186,300 in the first three months of the year.

This was down from 196,400 in the last quarter of 2009, and below the 206,800 of the first quarter of last year.

But the figures gave "no cause for complacency", according to CML director general Michael Coogan.

"We hope and expect to be able to revise down our 53,000 forecast for repossessions in 2010, but we are acutely conscious of the beneficial influence that low interest rates and the package of support have played so far," he said.

Mortgage rescue

Some 629 households have been helped under the mortgage rescue scheme in England, separate figures released by the Department for Communities and Local Government show.

Some households still face pressure to pay for mortgages

When it was launched under the previous Labour government in January 2009, ministers said that up to 6,000 households could be helped by the scheme.

This scheme allows people to sell their property to a local authority or housing association and remain in it as a tenant, or to sell part of the home in a shared equity deal to reduce mortgage payments.

Another 1,849 applications were ongoing by the end of March. In these cases, lenders would hold off any repossession action.

The CML said government support for homeowners had helped keep a lid on repossessions, which are much lower than during the housing slump of the early 1990s.

It has called on the new government to maintain a commitment to those in difficulty - writing a joint letter with Shelter and Citizen's Advice to the new Chancellor, George Osborne.

This would be particularly important as the government introduces cuts to tackle the fiscal deficit, lenders said.

"There is a risk that higher interest rates or unemployment would tip into arrears a number of finely-balanced households who are currently coping, and would undermine the capacity of households struggling to get back on their feet," the CML said.

"Lenders have worked hard to help their borrowers and are continuing to do so, but the financial situation for many households remains fragile."

The group said those with entrenched debt problems were still struggling to restore their financial position and repay arrears.

But low interest rates and relatively stable employment were probably helping to prevent new households getting into difficulties.

In the courts

Separately, figures from the Ministry of Justice showed that the number of potential repossessions in the pipeline in England and Wales was also falling.

The number of possession actions - the first stage of an attempted repossession by a lender - stood at 18,504 in the first three months of the year. This was 8% lower than the previous quarter and 24% down on the same period last year.

The number of possession orders agreed by judges also fell to 14,373 - a reduction of 13% on the previous quarter and 15% down on a year ago.

In November 2008, a mortgage pre-action protocol was introduced which said lenders would have to demonstrate to the courts that they had exhausted all possibilities before going ahead with a repossession.

A spokeswoman for the DCLG said: "Figures published today by the Council of Mortgage Lenders and the Ministry of Justice show that the threat of repossession remains very real for homeowners across the country.

"That is why Communities and Local Government Secretary Eric Pickles will be asking the new housing minister to take a fresh look at existing government schemes which help homeowners struggling to pay their mortgage and make sure that they offer the best deal for home-owners, as well as value for money for the taxpayer."

Mortgage rationing has eased off this year

The Post Office has stepped up its attempt to become one of the UK's biggest mortgage lenders.

It is offering a mortgage deal that requires just a 10% deposit.

Unusually, the deal is available on an "interest-only" basis as well as the normal "capital-and-interest" repayment method.

This will make it cheaper and easier for some borrowers to afford the initial repayments.

"This is a totally different approach from the rest of the market and will make their mortgages much more open to home buyers," said Aaron Strutt of mortgage brokers Trinity Financial Group.

"Over the last few days, more lenders have reduced their mortgage rates in an effort to attract more business including Nationwide, Abbey, Northern Rock and a number of building societies.

"Virtually all lenders require mortgages over 75% loan to value (LTV) to be on a repayment-only basis - that's why the Post Office rates would be so different," he added.

Easing market

The new 90% loan is part of a revamped range of mortgages from the Post Office .

It started lending in 2007 on a trial basis, but committed itself fully to the mortgage market last October.

"We are looking to be one of the top 10 lenders in the UK," said a spokeswoman.

The Post Office loans, which can be applied for by post, internet and phone or at its branches, are financed by the Bank of Ireland, with which the Post Office has a joint venture.

The average deposit on a UK house purchase still stands at 25%, a level it has been at since the credit crunch and banking crisis of 2007 and 2008 forced lenders to start rationing their loans.

That level of downpayment is still required for 57% of all current mortgage deals on offer.

However, the gentle easing of rationing in the mortgage market since the start of the year means there are now more than 160 deals available that ask for just a 10% deposit.

"Whilst there are existing 90% deals available, many remain out of reach for most borrowers because the rates are too high," said the Post Office's director of personal lending, Marco Hughes.

"Instead, we're offering more affordable rates that will allow more borrowers the opportunity to take out a mortgage with a smaller deposit."

'Not a computer'

The interest charged by the Post Office on its two-year fixed rate, at 90% LTV, is 5.45%.

However, its base-rate tracker at 5.49% is set at a margin of 4.99% over the Bank of England's base rate, with no cap or ceiling.

A spokeswoman explained that while being offered "interest only" deals, borrowers would still have to show they could eventually repay the capital as well.

"We ask all the usual questions any responsible provider would, for example assessing the value of the property, credit history, employment status and salary, plus customers are required to provide details of their repayment plan in order to ensure the loan can be repaid," she said.

"Importantly, each application with the Post Office will be manually underwritten which means it is assessed by a fully qualified human being, not a computer," she added.

Lloyds banking group

Meanwhile the Lloyds banking group, which includes the Halifax, has stopped offering interest-only home loans worth more than half a million pounds.

The lender will now lend sums of this size on a repayment basis only.

And it will no longer accept the promised sale of the house or business, or prospective inheritance, as proper repayment methods for any size of interest-only loan.

"We have recently undertaken a strategic review of interest only to ensure our products and procedures reflect the additional risks and responsibilities associated with this type of lending," the lender said in a message to mortgage brokers.

"It is important that repayment vehicles can provide certainty of their future value," it added.

The property market has got off to a slow start this year

The number of mortgages approved for home buyers rose slightly in March, the Bank of England has said.

The total increased to 48,901 in March from 46,882 the month before, and the figure was 17% higher than in March 2009.

However, the Bank's figures still suggest that mortgage lending has had a sluggish start to the year.

Approvals in the first three months were the lowest on record for the first quarter of any year, apart from 2009.

"The Bank of England mortgage approvals data do little to dilute the belief that the housing market is finding it difficult to regain momentum after flagging at the start of 2010," said Howard Archer, economist at IHS Global Insight.

"We expect house prices to be erratic over the coming months and they may very well be no better than flat over the rest of the year," he added.

'Fragile' market

Meanwhile building societies experienced another outflow of savers' money, with a net £318m being removed in March.

It was the 12th time in the past 13 months that savers have taken out more money than they have put in from their accounts with building societies.

Despite this, Adrian Coles of the Building Societies Association was optimistic.

"The mutual sector continues to offer some of the most consistently competitive savings rates, but people may instead consider making additional mortgage payments or using savings to support their incomes in this challenging economic climate, or they may be looking to invest in the equity markets," he said.

"The mortgage market will remain fragile as there is uncertainty in relation to employment, interest rates, house price inflation, mortgage availability and, conceivably even after the election, the political outlook."

A key factor still restraining mortgage lending has been the continued level of mortgage rationing due to the credit crunch and the banking crisis.

Despite the recent revival in profitability of the UK banking system, lenders are still demanding deposits from borrowers averaging 25% of the value of the homes being purchased.

And mortgage lenders have continued to warn that from 2011 onwards banks will have to repay the government the £300bn it provided in emergency loans during 2008.

This suggests that mortgage rationing will continue for several years, though the availability of funds has been thawing slightly in recent months, according to the financial information service Moneyfacts.

'Slight improvement'

Moneyfacts said that the number of mortgage deals available at the start of May was up by 12% from a month ago to 1,928, which was also 36% more than at the start of the year.

There are still very few deals requiring just a 0% or 5% deposit, but the number asking for a 10% or 15% downpayment went up from 461 to 520.

As a proportion of the market they accounted for 27% of all deals on offer - the same as a month ago - while the proportion of deals asking for at least a 25% deposit was also steady, remaining at 57% of all mortgages.

"It is good news for borrows that lenders are slowly acclimatising to a new landscape of the mortgage market and continue to improve on the competitiveness of new mortgage deals," said Darren Cook of Moneyfacts.

"But lending figures show that there is only a slight improvement in the market; we still have a way to go before the market returns to any sort of normality," he added.