"In the purchase market, first time buyer activity looks on the surface to have held up better than homemover or buy-to-let when you compare the number of July loans made this year and last"
First-time buyers borrowed £4.4bn, down 19% on June and 4% on July last year. This equated to 28,200 loans, down 17% month-on-month and 6% year-on-year. Home movers borrowed £6.2bn, down 9% on June and 16% compared to a year ago. This represented 29,900 loans, down 11% month-on-month and 19% on July 2015.
The report also revealed that remortgage activity totalled £6bn, up 7% on June and 20% compared to a year ago. This came to 33,400 loans, up 3% month-on-month and 10% compared to a year ago.
Landlords borrowed £3bn, up 3% month-on-month but down 21% year-on-year. This came to 18,600 loans in total, up 1% compared to June and down 26% compared to July 2015.
Home-owner house purchase lending
While first-time buyer lending was down in July compared to June, the number of loans advanced to first-time buyers was higher than any other month this year. Home mover activity was at its third highest monthly level this year by volume and by value in July, after March and June. On a seasonally adjusted basis, first-time buyers and home movers decreased by volume 13% and 7% respectively in July compared to June, but the number of loans to first-time buyers increased 8% compared to July last year, while the number of loans to home movers decreased 7% year-on-year.
Affordability metrics for first-time buyers have remained relatively stable. The typical loan size decreased to £133,000 in July from £135,700 in June, while the average household income of borrowers purchasing their first home also decreased slightly from £40,400 in June to £40,100 in July, which meant the income multiple was unchanged at 3.55.
The average amount borrowed by home movers in the UK increased to £171,400 in July from £171,000 in June, and the average household income of a home mover also increased to £55,000 from £54,700. This meant the income multiple went up from 3.26 to 3.29 month-on-month.
Remortgage lending saw a month-on-month and year-on-year growth in July. £6bn was borrowed in total in the month for remortgage which, alongside April 2016, is the highest monthly amount borrowed for remortgage since January 2009.
Buy-to-let lending in July
Gross buy-to-let lending, while lower than levels we saw last year, saw the highest monthly levels of activity by volume and by value since the stamp duty changes on second properties came in on April 1. Buy-to-let remortgage lending continues to be the driver, making up two-thirds of gross lending.
Paul Smee, director general of the CML, had this to say: “These figures cover the first full month of lending following the EU referendum. They show a month-on-month decline in first-time buyer and home mover activity and muted activity on the BTL market. It is hard to determine whether these figures reflect a first uncertain reaction to the referendum vote, or are a sign of a market which was already cooling. It will be quite some time before a full assessment can be made. We do believe that the Buy-to-let lending market is still readjusting after the large level of activity before the changes to stamp duty on second properties in April.
Remortgage lending on the other hand has continued to grow, and reacted with a 7-year monthly high. Borrowers seem keen to take advantage of the wide range of competitive deals in the market and, following the base rate cut in August, this is likely to continue.”
Peter Williams, Executive Director of the Intermediary Mortgage Lenders Association, said: “Conclusive evidence on the state of the mortgage market will be hard to come by for some months following the triple whammy of stamp duty reform, the Brexit vote and the first base rate change since 2009. All of this, plus the summer holiday season, means we will be waiting for some time to determine the shape of things to come in the second half of the year.
Nevertheless, lending conditions remain favourable with product availability continuing to improve and rates continuing to reach new lows. Remortgage activity in particular is setting the pace with strong competition giving many consumers an incentive to explore lower repayments in the full understanding that rates won’t go much lower.
In the purchase market, first time buyer activity looks on the surface to have held up better than homemover or buy-to-let when you compare the number of July loans made this year and last. However, there are warning signs for policymakers lurking beneath the surface. Income multiples have crept up and with first time buyers spending less of their household income on repayments, this suggests that higher earners are making headway while others may find themselves locked out.
Today’s average first-time buyer is contributing a 15% deposit, but there are serious questions to be asked about whether the looming end of the Help to Buy mortgage guarantee will push this figure up and limit options for those with 5% or 10% deposits. Despite Brexit being a government priority, Westminster cannot afford to put off action to ensure that access to homeownership is supported for the long term. The new Chancellor needs to deliver in his Autumn Statement in November.”
Brian Murphy, Head of Lending for Mortgage Advice Bureau comments: “The data released by the CML today reports on July lending, so provides an accurate picture of the first full month of lending transactions post referendum, and that borrowing by those moving home, first time buyers and landlords was lower than the previous month, with only remortgaging figures up on June.
There could be a mix of reasons for these figures; firstly, July is traditionally a quieter month as it is peak holiday season, so we would expect a drop of some sorts on the month on month figures. In terms of the year on year figures, this could be a combination of a quieter market immediately following the referendum, and also the fact that July in 2015 was an exceptionally busy year due to pent up demand following the General Election, which would inevitably skew the year on year comparison.
The closest ‘benchmark’ in terms of year on year figures would be 2014 which was considered a normal market, and therefore comparing those figures we can see that lending transactions for both remortgaging and the buy to let sector are higher in 2016 than they were for the same period in 2014. When we look at mortgage volumes for house purchases, numbers on 2014’s market are down for the same period, but only by 9%. Given the political and economic uncertainty in the lead up to the Referendum, this might indicate that actually, the market was relatively stable in July after all.
Of course, it’s too early to tell if this signals an overall downward trend in lending to fund purchases, or if these figures reflect an initial ‘deep intake of breath’ following the 23rd June. What we can see is that more consumers are taking the opportunity to lock into record low rates by remortgaging and certainly, with many lenders repricing downwards and introducing new products and more flexible lending criteria in the last couple of months, this is a trend that we would expect to see continued and borne out by the August CML data which will be available in October.”
