Wednesday, July 3, 2013

Mortgage Approvals Rise Thanks to UK Lending Schemes

Loans (Photo credit: zingbot)
Mortgage approvals are on the rise in the UK, particularly for first-time home buyers. The increased number of approvals indicates resurgence in consumer confidence, along with an increased availability of products. Since most of the approvals were attributed to first-time home buyers, much of the credit for the increase can be attributed to government lending schemes, such as Funding for Lending, the NewBuy, and the Help to Buy schemes. 

These schemes have made it easier for people to enter the housing market due to a variety of incentives. Furthermore, because so many of the mortgage approvals are driven by high loan-to-value borrowers (meaning those borrowers putting forward a low deposit in relation to the size of the mortgage), many are further crediting this high LTV rate to the mortgage thaw instigated by the government lending schemes. We will look at why consumers are getting back into the property market, and specifically at how the government funding schemes are fueling the increased demand.

Higher Mortgage Approvals

After the 2008 financial crisis, mortgages became much more difficult to get. Many banks were warier about who they lent money to in an effort to avert another financial disaster. At the same time, property prices continued to rise. As a result, homebuyers were stuck: they could no longer qualify for mortgages, and even if they could, they couldn’t afford the payments on those mortgages. The housing market stalled, as did the economy.

Lending Schemes

The government’s lending schemes were designed to overcome this predicament. The three main lending schemes, Funding for Lending, the NewBuy, and Help to Buy, all have their own unique structures and regulations, but they all share the same purpose: to make mortgages easier for people to afford. The Funding for Lending scheme in particular has helped fuel much of the increased approval rate. 

Under the Funding for Lending scheme, cheaper funds are delivered to lenders, thereby mitigating the risk those lenders take on by approving mortgages for borrowers with smaller than average deposits. Likewise, the NewBuy and Help to Buy schemes work on a similar basis, with the government either paying the lender a certain portion of the property’s value, or contributing a portion to the borrower’s deposit. As a result, mortgage rates are being driven down, and first-time home buyers no longer need to save up for years on end in order to make a deposit on a home. In some cases, the government may even contribute up to half of a borrower’s deposit.

The housing market is a huge driver of the economy, and without people buying houses, the economy fails to grow. News that mortgage approvals are on the rise are encouraging not just for first-time homebuyers, but for all UK consumers. The increase in mortgage approvals, however, is due to more than market forces; it is largely driven by government lending schemes that mitigate the risks of lending for lenders, while decreasing the overall deposits borrowers have to put forward. While it is unclear if mortgage approvals can continue to rise without such government assistance, this current news is certainly encouraging for the foreseeable economic future.

Harry Davis is a former bank teller. He still likes to keep up with money matters, and then posts his findings for others to read. You can learn about the financial planning service at

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