Mortgage lending on the rise

Mortgage lending rose by 5% in July, compared to June, but remains down 3% year on year

Mortgage lending rose by 5% in July compared to the previous month, to £13.6bn, but was down 3% from £14bn in July 2009, supporting claims that the housing market is slowing down.

The gross lending figures, published by the Council of Mortgage Lenders (CML), indicate that lending is on track to meet the CML’s lending forecast of £140bn for the year.

CML economist Paul Samter commented: “It is difficult to see anything other than a slow market for the rest of this year as underlying activity remains subdued. The rest of 2010 is likely to see rather lower lending and transaction numbers compared to the same period last year. Late 2009 saw a pick up as some homebuyers looked to move before the end of the first stamp duty holiday.

“But for most homeowners, the situation is not that bleak. The vast majority of households continue to pay their mortgages in full every month, and many have benefited from the record low interest rates. This looks set to continue for some time yet. While there are a range of risks to the outlook, low rates will further help most stay on top of their finances.”

Brian Murphy, head of lending at independent mortgage broker Mortgage Advice Bureau, said he did not expect any big changes in lending during the rest of the year: “There is no stamp duty incentive in the second half of 2010 so borrowing levels will invariably be down on the same period last year, especially with October’s spending review looming and people choosing to sit on their hands.

“Although the [Bank of England's] monetary policy committee (MPC) voted 8-1 in favour of keeping rates on hold again this month, inflation remains above target and with unemployment likely to rise in the autumn in the wake of public sector cuts, many borrowers are avoiding base rate complacency.

“Perhaps the standout finding in July is that borrower appetite for variable rate mortgages waned and fixed rates were the overwhelming choice. Nationally, we have seen fixed rate mortgages among house purchase customers increase from around 45% in January this year to more than 60% in July. Increasingly, borrowers are aware of the danger of the base rate moving against them and are opting for the safe haven of fixed rate loans.”

However he added that rising average loan-to-value ratios in July were confirmation of growing competition among lenders and a renewed appetite to lend.

The caution exhibited by mortgage borrowers is contradicted by UK retail sales figures released by the Office for National Statistics today, which are up 1.1% on the previous month, and 1.3% higher than July 2009.

Jeremy Cook , chief economist of currency exchange broker World First said: “This is very surprising and flies in the face of recent consumer confidence measures. I always suspected that the summer months would deliver a strong showing for the UK economy. However, this is likely to be the best we will see for a while. With the spending review just around the corner, I expect consumers will tighten their belts for fear of how the cuts will affect the average family.”

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Yorkshire and Clydesdale customers face mortgage rise

A miscaculation by the Yorkshire and Clydesdale banks means some mortgage holders could be asked to repay up to £300 more each month

Thousands of Clydesdale and Yorkshire Bank mortgage customers are facing higher monthly payments after the providers, owned by National Australia Bank, said they had miscalculated repayments on some of their variable and tracker rate mortgages.

The banks said 18,000 customers have been left with a shortfall on their mortgages, all of who have now been asked to pay the correct monthly amount plus an additional monthly sum to meet the shortfall. According to a spokesman for Yorkshire Bank the affected products are “some variable rate mortgages on which interest is calculated daily, which will include some trackers.”

Around 10,000 of the victims are Clydesdale customers in Scotland, with the remainder Yorkshire Bank customers. In total, £19m has been underpaid with an average individual total underpayment of £800. However, some homeowners face soaring repayments of up to an extra £300 a month.

One mortgage payer, writing on the MoneySavingExpert forum, said: “They are asking for an extra £200 per month for the remaining nine years of our mortgage. This is in excess of £21,000. How is this possible?”

The problem began in 2005 when a mathematical error resulted in over or underpayments being made whenever the Bank of England base rate moved up or down sharply. When rates plummeted in late-2008 to early-2009 customers were not asked to pay enough.

The bank said there were options available to customers, including making a one-off payment to cover the shortfall or extending their mortgage term, and both providers were dealing with problems on a case-by-case basis.

A spokesman for Yorkshire Bank said: “[The banks] have been speaking to the Financial Services Authority and the Financial Ombudsman Service (FOS) about how best to handle this, and they wanted to do it the right way.”

Steve Reid, retail director for the Clydesdale and Yorkshire Bank, said: “We are very sorry that this error has happened and for any inconvenience it may have caused those customers affected. We would like to reassure mortgage customers that they need take no action unless they have received a letter from us.

“The vast majority of our customers are not affected and, of those that are, 99% have already received their letter advising them of the specific impact on their account. The other 1% will hear from us in the next couple of weeks advising them of options to bring their account back on track.”

But Dan Plant, a money analyst at MoneySavingExpert, said: “This huge error could push many borrowers into difficulties paying their everyday bills, as the massive hikes in mortgage payments are unlikely to have been budgeted for.

“However, unlike when customers miscalculate payments and get slapped with huge £30-£40 charges, here the bank has messed up but the customers are still feeling the brunt.”

The website said customers could demand not to pay the shortfall or try and come to an agreement where they only pay a percentage of the cash due. If customers don’t get a satisfactory response within eight weeks or are rejected earlier, they have a right to complain to the independent FOS.

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