Bank Lending Up as Mortgage Optimism Rises

Mortgage lending increased 1% in February compared to the previous month, according to the latest data from the British Bankers' Association.

Banks made £7.8bn worth of loans after £7.7bn worth of mortgages in January meaning a solid start to the year for mortgages.

The latest figure for February is also 1 per cent higher the recent monthly average of £7.7bn, which is measured over the previous six months.

For borrowers it means there are more mortgages available with the trend set to continue this year considering the unprecedented support available to housing finance.

Chancellor George Osborne has made it is political priority to focus on housing and mortgages in a bid to get the economy moving.

The Government's funding for lending scheme that offers cheap loan to banks to pass on to consumers has created some very cheap mortgages.

The Help to Buy scheme announced in the budget offers billions of pounds of support to homeowners through deposit loans and shared equity housing.

The BBA statistics show lending has got off to a solid start with more than £15bn lent from banks in two winter months. But what is coming up spells good news for Britain's aspiring homeowners and existing mortgage holders.

What will happen to mortgages in 2013?

The Government is preparing to loosen monetary policy further as announced in the Budget by Osborne last week.

The inflation-target of 2% that has lasted for more than 15 years will remain but it will now be accompanied by an effective growth target too.

The Bank of England will also be allowed to plot interest rates over a longer period to increase the stability rather than on a monthly basis.

Both measures are expected to reduced the volatility in interest rate movements so they will not be expected to rocket upwards when the economy recovers properly.

In a normal environment it will also lead to much slower changes in rates and with more advance warning for mortgage borrowers. But in 2013 the Government's funding for lending scheme, which will run until 2015, means interest rates are highly unlikely to go up.

Forecasts for economic growth in the UK were slashed from 1.2% to just 0.6% last week as well meaning interest rates are likely to stay lower for longer. The lending scheme should lead to a greater supply of mortgage loans and cheaper rates through the year but it is hard to predict.

Since the scheme started in August 2012 loans fall businesses and mortgages fell by £2.4bn by the end of the year. All this complex policy means that rates are likely to stay lower and criteria will relax slightly to deal with the extra funding banks are expected to receive.

Fixed, SVR or tracker?

For standard variable rate borrowers the low interest rates are excellent but it should be noted that lenders put up rates last year with little warning and despite no Bank of England rate rise.

The same situation applies to tracker mortgages after the Bank of Ireland, the lender behind the Post Office, more than doubled its tracker rate for 13,500 borrowers last month.

There are no certainties on trackers or SVRs and individual lenders can act in different ways with cleverly worded contracts.

The only guaranteed rate is through a fixed rate deal and they are as cheap as ever right now and falling.

For a 40% deposit five-year fixes are far below 3% and two-year fixes pushing closer to 1.5% than 2% now.

With lower deposits the rates are higher but still extraordinarily cheap and falling.

With a raft of Government support, more lending and cheaper rates, it may be time to feel more confident in the mortgage market than any time in the last six years.