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Strong fixed rate lending buoying market – BoE

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Fixed rate lending is leading a surge in mortgage market lending, according to the Bank of England (BoE).

Gross advances of £55.9 billion in new business were recorded in Q3 2014, 13 per cent higher than Q3 2013 and the highest amount advanced in the third quarter of a year since Q3 2008, according to the latest BoE Mortgage Lenders Statistical Release.

Fixed are lending continues its popularity, as the proportion of gross advances at fixed rates increased for the eighth consecutive quarter to 82.6 per cent in Q3 2014, the highest proportion since the series began in 2007.

The overall average interest rate on amounts outstanding decreased by 2bps to 3.28 per cent in Q3 2014, the lowest since the series began.

This was due to the decrease in the average interest rate for fixed rate balances of 9bps to 3.54 per cent and to the decrease in the average interest rate on variable rate balances of 1bp to 3.10 per cent.

Commenting on the figures, Jonathan Harris, director of mortgage broker Anderson Harris, said: ‘The third quarter was stronger from a lending perspective than the second as heightened activity in the housing market in the first half of the year filtered through into the lending figures.

‘The vast majority of borrowers are opting for a fixed rate which is a no-brainer; while an interest-rate rise may still be some way off, fixed rates are just too good to turn down and continue to fall as lenders compete for business. The average interest rate on total mortgages outstanding also decreased, suggesting that borrowers aren’t overburdening themselves and will be able to cope with a rate rise when it comes, particularly if they have opted for a fixed rate.”

The proportion of lending to first time buyers decreased by 0.4 per cent to 21.7 per cent in Q3 2014, however the value of loans to first time buyers increased over the quarter to £12.1 billion, the highest quarterly amount since Q3 2007.

Simon Crone, vice president – Mortgage Insurance Europe for Genworth, said: “It is no wonder that first time buyer numbers remain historically subdued when the products they have traditionally relied on are still in short supply.

“Whatever comes of next year’s election, it is vital that the lending community puts its weight behind the high LTV market in 2015 to ensure a higher volume of prudent first time buyer lending.”

The proportion of lending for buy to let increased from 13.6 per cent in Q2 2014 to 14.3 per cent in Q3 2014, with an increase in value from £5.9 billion in Q3 2013 to £8.0 billion in Q3 2014, the highest quarterly amount since Q2 2008.

Harris commented: “Buy-to-let continues to grow as lenders offer cheaper rates and more relaxed criteria to attract investors. With more people having to rent for longer until they can save up a deposit, the prospects for the sector continue to be strong and we expect it to perform well next year.

The proportion of other new lending (including lifetime and equity release mortgages) decreased from 3.4 per cent in Q2 2014 to 3.0 per cent in Q3 2014.

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