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This week in Mortgages

As Christmas approaches, so the great spending spree is upon us. Lights are now adorning every high street across the country and all those annoying festive songs will start to ring in every pub, club and town centre the land-over.

But the spending is not just on crackers, clothes and Cliff Richard’s Mistletoe and Wine, but it seems mortgage brokers may as well have the Christmas lights up and the smiling Santa willing you in, if you listen to some of the industry’s leading figures over the past few weeks.

The CML earlier this year predicted a dramatic increase in gross lending for the year of about £345bn and it appears much of that spree is going on before our eyes. Calls to various brokers over the last few days have led to the response: “Be quick, we’re very busy.”

So all seems to be going nicely at the moment unless, of course, you are not one of those brokers struggling to cope with a flurry of work, but there are warnings despite the good times.

Morgan Stanley’s chief UK economist David Miles claimed on Wednesday that the housing market could bust in the next few years with house prices coming crashing down as demand weakens in the knowledge that rapid house price inflation will not continue.

The claim was rubbished by many in the industry but it serves as a warning that the optimism in the market cannot go on for ever.

One issue that the FSA has identified that could harm the sector in future is interest-only mortgages without a repayment vehicle. Thematic research has identified that 19 per cent of all mortgages taken out in 2005 were interest-only deals without a repayment plan in place.

When you consider there were 2.16 million new deals last year, according to CML figures for first-time buyers, homemovers and those remortgaging, that equates to 410,000 people or couples on interest-only without evidence of a repayment vehicle – and that is only on 2005 sales, not this year or pre-2005.

That is not to say that there is anything wrong with such mortgages as, if used correctly, they can be useful to many, but the concerns are whether those paying a relatively low rate on an interest-only deal and enjoying the benefits of homeownership as a result, realise the scale of the problem if they fail to make plans to repay the capital.

The regulator has also mentioned other issues it is investigating such as affordability, lending into retirement and training and competence to keep all in the market on their toes in the new year.

But that, of course, is after the Christmas party season is over with, so if you have bought one of Cliff’s classics you can play it to your heart’s content during the heavy-drinking and eating period that is upon most of us.

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