Rise in property loans seen as a good sign for UK real estate market in 2010

Loan approvals at its highest in the UK

Property loan approvals in the UK are at their highest since March 2008 and will help the real estate recovery in 2010, it is claimed.

The Bank of England’s latest survey of credit conditions in the UK shows that lenders reported an increase in credit availability for borrowers with loan to value ratios above 75% in the fourth quarter of 2009 whilst the maximum loan to value ratio rose for the first time in over two years.

It said that banks plan to increase the supply of mortgages in the first quarter of the year as the outlook for the economy slowly improves. UK mortgage approvals figures provide further evidence that the economy is emerging from its worst peacetime recession since the 1930s, it added.

This is a good sign for the property market according to the Royal Institution of Chartered Surveyors. ‘The figures support our view that increasing momentum in the property market will see further rises in house prices during early 2010. Mortgage approvals have now been rising consistently for a year and the latest credit conditions survey from the Bank of England continues to suggest a gradual improvement in the lending environment over the coming months,’ said RICS senior economist Oliver Gilmartin.

‘Despite an expected increase in property listings and the onset of several headwinds during 2010, the current imbalance between demand and supply is set to underpin further price gains in the near term,’ he added.

Gilmartin warned though prospective buyers that an improved property market will inevitably result in higher interest rates at some point. ‘The more buoyant property market allied to the pick up in economic activity, now under way, is likely to bring forward the day when interest rate rises are back on the agenda,’ he explained.

RICS expects an increase in the base rate during the second half of the year which will inevitably filter through into higher mortgage rates. ‘Significantly, the standard variable mortgage rate will be moving off a low base, currently more than 40% below historic norms, meaning that small movements in interest rates have a bigger proportional impact on monthly payments,’ he added.

The recovery in the UK property market has surprised economists and analysts. Opinion is divided over what is likely to happen in 2010 with RICS being the most optimistic but others saying that the market will remain flat or might even dip.

However, the monthly level of mortgage approvals remains far below pre credit crunch levels while bank and consumer caution remains evident as unsecured lending continues to fall back, the Bank of England survey also shows. ‘There are signs activity is picking up from the trough. It is expected though that loan approvals to remain subdued for 2010,’ said Colin Ellis, an economist at Daiwa Capital Markets Europe.

One Response to “Rise in property loans seen as a good sign for UK real estate market in 2010”

  1. A new report published by Savills research estimates that foreign capital is being injected into the prime London market at a rate of £3.3 billion annually, with a further £0.4 billion into the capital’s prime newly built stock. Taken together, these sums are sufficient to buy all privately owned stock in the whole Greater London area within 157 years at today’s values, the report says. Most of the annual cash injection (£2.7billion) of new funds from overseas finds its way into the resales market in the prime central area (Mayfair to Kensington, Notting Hill to Chelsea). This sum equates to just under 2 per cent of the total value of all the prime housing stock of this area and accounted for 34 per cent of all the stock sold in 2010. Last year, overseas nationals were responsible for buying 28 per cent of all resale properties across all prime London but 54 per cent by value in the prime central London area in the over £5 million price bracket.


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