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Homing in on a tentative recovery

It was a tough 12 months for the mortgage market. House prices were still falling in the first six months as the number of loans available shrank due to scarce funding. Gross mortgage lending hit a low in February.

Lending did pick up after that but gross lending figures remained far below 2008.

The Bank of England bank rate was also in freefall, dropping from 2 per cent to 1.5 per cent in January, to 1 per cent in February and down to 0.5 per cent in March, where it stayed for the rest of the year.

Dual-pricing remained an issue, with many of the best mortgage deals only available direct from lenders. Anything remotely risky was shunned which meant a shortage of lending for those hoping to borrow at higher loan-to- value ratios.

Some mortgage networks had a difficult year, with Network Data and Mortgage Times in controversy over unpaid commission. Network Data was suspended from Aim and then collapsed without paying £5m in commission owed to appointed representatives. Mortgage Times managed to survive, although auditors questioned its future after the firm posted losses of £1m for 2008.

Building societies had their troubles. Dunfermline was taken over by Nationwide while Cheshire and Derbyshire merged and Yorkshire and Chelsea are also set to merge.

Equity release had a bumpy ride with some smaller lenders closing but it was the sudden withdrawal of Prudential that sent shockwaves through the market.

Mortgage broker Danny Lovey described the decision as a hammer blow to the sector, and PMS chairman John Malone said: “Prudential was a heavyweight whose name gave consumers confidence. It sends a stark message to the sector.”

The mortgage industry came under close scrutiny from the FSA. Five years after the regulator took over supervision of the market, it continued to find serious flaws in some mortgage businesses, with a series of fines and bans against brokers.

The FSA published its mortgage market review and while it did not go as far as many had feared, it did spell out some serious changes.

It suggested that self-cert mortgages could be banned, that affordability of borrowing should be tested by lenders and “toxic combinations” of loans should be outlawed. It was also proposed that the market’s responsibilities could be expanded to include buy to let and secured lending and the capping of loan-to-value or loan-to-income ratios used by lenders was not ruled out.

But the news was perhaps not all bad. After property price falls in the first part of the year, most of the indices showed prices stabilising and then start to recover some lost ground.

The Council of Mortgage Lenders pointed to the number of new loans processed in October being at the highest level for two years.

But with many people saying the small rises in house prices is due to a shortage of property on the market, it is far too early to start celebrating a recovery just yet.

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