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Mark Harris: Bring back lending balance

Mark Harris Mortgage View

There was some much needed good cheer for homebuyers as HSBC announced that it will make an additional half a billion pounds of mortgage funding available to borrowers with deposits of 10 per cent.

The bank had already reached the £1bn it committed to lending earlier this year, such is the demand for funding. So with the extra allocation, it will now make £1.5bn available to homebuyers requiring 90 per cent loan to value this year.

This is excellent news, particularly given the scarcity of funding at this level, and HSBC should be applauded for its commitment to the mortgage market. But what about other lenders?

Sadly, HSBC seems to be ploughing a lonely furrow, yet it would be unrealistic to think that the lender could do it all on its own.
There may have been a significant decline in the number of transactions in the housing market this year but there is still plenty of pent-up demand. There simply is not enough funding available, particularly at high LTVs. It is inevitable that the extra funding that HSBC has made available will be snapped up in no time at all.

What are the other lenders doing? With the majority of deals available at just 75 per cent LTV, and the average house price just shy of £156,000, according to the Land Registry, we are talking about a massive deposit of £39,000 being required. This is well beyond the means of some second-time buyers, never mind first-time buyers. And what about areas where prices are way above the UK average, such as London, where the average property price is nearer £300,000?

A 10 per cent deposit is much more realistic for the majority of buyers. If HSBC is happy with this level of borrowing, than why not other lenders? Is HSBC being reckless? Or are the majority of lenders being far too cautious? The latter seems to be the case. The pendulum has swung too far one way because of some reckless lending in the past. A better balance needs to be found.

As well as the good news from HSBC on funding and its popular discounted rate at 1.99 per cent, a flurry of lenders have recently taken the welcome step of reducing a range of fixed and tracker rates.

Abbey, Cheltenham & Gloucester, Nationwide, Northern Rock and Woolwich, all cut rates within days of each other. But while such moves are welcome and suggest there may be an element of competition returning to the mortgage market at last, the real problem is not so much rates as deposits, with the majority of these reductions on products requiring a 30 per cent deposit. That takes some doing.

More than one or two lenders need to be more accommodating on their LTVs. Until this happens, the mortgage and housing markets will remain in the doldrums.

Mark Harris is managing director of Savills Private Finance

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