Mortgage lending in February was up a healthy 12% following a bout of cold feet (and hands) that kept buyers at home during the January blizzards, the Council of Mortgage Lenders revealed today.

Sluggish mortgage sales in January were largely due to a slump after the ending of the stamp duty holiday in December, which has since been revived and raises the zero stamp duty threshold to £250,000 for first time buyers, fixed for the next 2 years.

The good news in February was that the 35,000 mortgage loans taken out marked an increase of 49% on year-earlier levels, while to total value of mortgage loans was £5bn, which was up by 67% on year-earlier.

These included 12,600 first time buyers mortgage loans, with deposits on average of 25% of property value. These mortgage loans amounted, on average, to 3.1 times household income, and first time buyers signed up to pay an average of 13.3% of their household income in mortgage repayments, according to the Council of Mortgage Lenders.

The fixing of the generous stamp duty threshold, although available only for first time buyers, is pegged as the significant market driver for the coming months.

“With the supply of credit still tight and the upcoming election causing political uncertainty, we are unlikely to see much change in the near future, although the new stamp duty exemption for first time buyers could boost the market somewhat,” said Bob Pannell, head of research for the Council of Mortgage Lenders (CML).

In the market for remortgages, February saw continued lethargy, with 24,000 remortgage loans of total value £3bn, down 35% on February 2009.

The need for financial advice and financial planning has been emphasised again this week, as new figures reveal that the average UK citizen is now struggling with debts of over £6,000.

These debts do not include larger borrowings, such as mortgage owings. The main elements of the household debt include, on average:

- credit card bills of £1,748

 - loans of £3,077 taken to pay for cars, weddings, holidays, and home repairs

- bank overdrafts of on average £518

- finance deal borrowings of £646 to repay the cost of kitchens, furnishings and household goods

Of those surveyed, 47% said their household debts were due simply to the easy availability of credit, which led them to spend more than they earned.

A further 12% of people revealed that their debts had come about because they had lost their job, and a quarter of those surveyed said their credit card bills had arisen as they struggled to pay for everyday necessities, such as petrol and food.

Worst of all, 50% of those surveyed said that they were now able to repay only the minimum amount owed, and that they expected to be in debt for at least four years.

*Source: Lovemoney.com survey of 3,000 UK adults

This should not set alarm bells ringing, however. A slowdown is normal for the time of year, due to seasonal factors and, this time round, the end of the stamp duty holiday on 31 December. These factors caused a â ‘bunching’ in house buying activity over the last few months of 2009.

Gross mortgage lending in November totalled £12bn, compared to £13.3bn in October.

The Council for Mortgage Lenders’ economist Paul Samter said: “There could be a modest decline in underlying house buying activity in early 2010 due to the stamp duty holiday ending.”

“There has been a modest increase in the availability of mortgage credit recently, including some tentative signs of a few high loan-to-value products emerging. But there is no sign of a swift recovery in lending volumes, especially with remortgaging set to remain at subdued levels while low interest rates persist.”

No change in interest rates is expected from the Bank of England in the coming months, according to the CML, and seasonal factors will continue as the dominant driver into a sluggish 2010.

There are currently 11m mortgages in the UK, with mortgages worth over £1.2 trillion.

Lenders are more committed than ever to working with debt advisers and mortgage borrowers to ensure that as many people as possible stay in their homes, according to the Council of Mortgage Lenders (CML) in its response to the chancellor’s pre-budget report this week.

“Lenders are determined that possession is a last resort. With earlier and better communication between lenders, consumers and debt advisers, arrears are being managed through the recession and possession action minimised, wherever possible,” said Michael Coogan, director general of the CML.

The Council of Mortgage Lenders recently cut its forecast for the number of house repossessions this year to 48,000, down a third from its original prediction of 75,000 in January.

The CML has also revealed this week that the number of mortgages arranged during October was 55,300, up 9% on September, and nearly 100% since January.

Good news also for first-time buyers, with the number of loans totalling 19,700 in October, up a third since October 2008.

In the period from April 2008 to September 2009, advisers in the nation’s Citizens’ Advice Bureaux have dealt with 3.06m debt problems, compared with 2.71m benefits problems, 844,000 employment problems, and 633,000 housing problems. 

Debt and benefit problems continue to grow at 21% per year, the charity said. 

There are several key debt management strategies available to combat this crippling problem. 

Consumers can take out a debt consolidation loan which will clear several debts at once, replacing a number of repayments with a single monthly sum. This is particularly useful for someone who has various credit card, store card and other debts, at various rates of interest. 

In addition to consolidating those payments into one, it may be possible to arrange the loan with an extended repayment period, thus reducing your monthly outgoings at the same time. 

Taking a remortgage on your home can enable you to borrow based on the equity you have built up, and clear your debts by folding them into your new mortgage deal. 

Again, when dealing with high-interest debts such as credit cards, a remortgage can result in considerable savings each month. 

Debt Management Plan (DMP) 

With a debt management plan you work with a debt specialist to renegotiate the terms of your debt repayments with your creditors. 

This can significantly reduce your monthly outgoings, and relate your payments to what you can afford, rather than what was being demanded of you before.

However, a debt management plan is not a legally binding agreement, and the conditions covering your repayments can be changed at any time by your creditors. The debt management plan will also be noted on your credit record for 6 years. 

Individual Voluntary Agreement (IVA) 

An IVA is a legally binding compromise agreement which must be approved and accepted by your creditors. By agreeing to an IVA, your creditors are accepting that you will never be able to repay your debt in full. 

Under an IVA your creditors may well agree to write off the majority of your debt in return for your undertaking to repay the rest over 5 years. 

The IVA is binding on both sides, however, and you must ensure that you meet all your repayments, otherwise the IVA will fail. 

Home owners with endowment policies linked to their mortgage may be required to encash the policy and pay the proceeds to their creditors, or release part of the equity built up in their home, under the terms of their IVA.

The average level of debt for those affected is £4096.32, spread over bank overdrafts, credit cards, store cards and loans. 

The age grouping most likely to have hidden debt was the 19-30 age group, of whom 26% had hidden debt. 

Largest hidden debt by cash value was among the 46-50 age group, where the average amount was £5880, and the 36-40 age group, with an average debt of £5834. 

AXA recommends financial advice as a means of facing up to and gaining control of debt. 

“The important thing is for people to take control of their finances and get the help and support they need,” said AXA spokesperson Alison Green. 

Those hiding their financial concerns should be encouraged to take their head out of the sand and start taking an active role in their financial future, she said. 

*Source: AXA report ‘My Budget Day/UK home to £50bn of hidden debt’, November 2009

Practices such as increasing customers’ borrowing limits without their permission, and taking interest-only repayments that do not reduce their real debt, will be challenged this month in proposals by consumer minister Kevin Brennan.

 The current practice of raising credit limits without consulting the customer will in future require the customer’s acceptance of the extra credit, in advance.

 The practice of taking interest-only payments has slowed customer capacity to make headway with their debt in up to one-third of cases, the government claims.

 Also to be outlawed is the practice of allocating customer repayments to the cheapest debt first. For example, customers with part of their debt under a zero-interest deal are forced to repay that part first, leaving the part of their debt that is subject to high interest rates to accrue interest for longer.

Welcoming the proposals, consumer groups accused credit card companies of enticing customers into overspending, and then squeezing as much additional income out of them as possible.

The Bank of England is lowering interest rates to encourage us to spend more but many smart mortgage borrowers are using the falling rates – and consequently lower mortgage repayments – as an opportunity to overpay their mortgages and reduce the amount they owe.

Both Lloyd’s TSB and HSBC have been advising their variable rate and tracker rate mortgage customers about the benefits of overpaying.

According to the Council of Mortgage Lenders, the ‘typical’ borrower who took out a 25-year tracker mortgage in October is now paying around £200 a month less than they were when they started. Paying that amount back in would shorten the term of the mortgage by around 9 years.

Similarly, overpaying by just £100 a month on a 4.5% mortgage rate would cut nearly four years off a £150,000 mortgage and save the borrower over £20,000.

Moreover, as house prices fall, overpayment is a good way to protect the amount of equity you have in your home.

Of course, you could choose to take the money saved each month and invest it somewhere else but with interest rates low achieving a high enough return could be difficult – not to mention potentially risky in some markets.

So if you do choose to overpay your mortgage, can you?

Well, as in the cases mentioned above, some banks are actively encouraging customers to overpay their mortgages, presumably to help create some much needed short term cash flow for themselves.

More generally, many mortgage providers will allow over payments up to a fixed amount per month or as a percentage of the total amount – around 10% seems the norm. Having said that, individual providers do have their own individual terms (which are worth looking into first) and you’ll want to avoid overpaying too much as this could trigger early repayment penalties.

As a good rule of thumb, it’s always smart to pay off expensive forms of borrowing (like credit cards or loans) before spending excess cash on overpaying your mortgage (which will usually be at a much lower rate). There are also tax considerations and even timing considerations depending on how your lender calculates interest.