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News - 11 April 2009
Their return to the market will be crucial to recovery

Is the mortgage market starting to thaw?

Borrowers, espcially first-timers, who have been frozen out of the mortgage market for many months are beginning to see banks and building societies ease criteria and start to compete for new lending. This can only be a good sign.

Several lenders have indicated that they will provide more loans in the coming weeks, and not just to the premium borrowers. They are offering deals to customers with much smaller deposits than the 25% that has almost become the norm.

HSBC has set aside £1bn for customers who can only afford deposits of 10% and Abbey are asking for 15%.

The willingness of banks to lend at high loan-to-value ratios may well signal a growing belief that house price falls are at least easing. Banks pulled away from these riskier loans last year when sharp drops in values threatened to wipe out the equity borrowers had in their homes. Now that the market has fallen by about 20% (but not in Brighton - see earlier story) banks may be reassessing the scope for further falls and coming to the consultion that it is unlikely to be more than a further 10 – 15%.

In addition to falling house prices banks’ ability to lend has been constrained because they themsleves have been unable to borrow money on the wholdale markets and they have hoarded what cash they have to strengthen their balance sheets.

The recent injection of cash from the government, together with a renewed confidence that the property market may be stabilising, has convinced the banks to provide more loans. Some of the banks that have been bailed out by the tax payer may also be yielding to government pressure to lend more although some of the best rates are being offered by non-assisted lenders such as HSBC.

However, brokers point out that while more mortgage applications are being approved, volumes are still weak compared with the peak of the market.

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