At long last, a Bank of England (BoE) survey has offered a glimpse of hope to the UK housing market that means a hint of optimism is creeping through London with the first signs of spring.

Mortgage providers expect to grant more loans in the next three months and Lenders were at their most positive in two years about the prospects for mortgage availability. Analysts believe this is because of their market share targets and the improving cost and availability of their funds.

In good news for first time buyers, those polled in the central bank’s quarterly survey were also more willing to lend to those with a small deposit, reporting that they have increased access to loans for buyers with deposits of less than 25%.

Meanwhile, Nationwide reported that average house prices rose for a second month in March, up 0.5% month-on month to £164,751.

However, the picture was marred by the BoE’s survey revealing an unexpected jump in the number of households defaulting on their mortgage payments, the first rise reported in almost two years.

Lenders expected the default rate to climb further still amid concerns over the impact of possible higher interest rates. The BoE may decide that increasing interest rates is necessary to combat increasing inflation but this will also increase the monthly repayments for many households beyond the level at which they can cope.

Analysts have suggested that an increase in remortgaging recently was because of households trying to shelter themselves from an expected increase in interest rates. Aside from remortgaging deals, lenders saw a marked decline in demand for loans to make house purchases.

Lenders also thought house prices would fall this quarter, but only a small balance thought mortgage demand would drop further.The unexpected increase in default rates on secured lending in the first quarter may temper Bank’s enthusiasm for lending more, and even if they are willing to lend more, the survey showed households’ demand for secured lending for house purchases fell sharply again.

There is general agreement in the market that, although there is some good news from this latest survey, the big picture still shows the UK undergoing a painful transition from a world in which the low cost and absolute availability of mortgages could not last to something more sustainable.

This entry was posted on Monday, April 4th, 2011 at 12:38 am and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.