There were 65,498 house purchase approvals in March 2014, 7% lower than 70,309 in February. It was the second consecutive month in which house purchase approvals have fallen, reversing eleven months of improvements which saw monthly lending levels increase from 52,537 to 76,753 between February 2013 and January 2014.
Despite the monthly dip, home lending is still significantly recovered compared to last year, with 22% more home loans than in March 2013. But the recent monthly falls suggest the improvement in lending may be reaching a natural plateau, as lenders start to implement stricter regulation.
The new Mortgage Market Review regulations are due to be introduced on April 26th. They will see affordability checks tighten up, and the application process lengthen. Lenders are already putting in place changes to fit the new regulation, to ensure a seamless transition to the new rules in April.
Richard Sexton, director of e.surv chartered surveyors, explains:
“Confidence is pervading the economy, but home lending has fallen back. Last month’s lending dip can be explained by the stormy patch of weather with which we welcomed in the New Year, but this isn’t enough to explain why lending fell further in March.
“This is a key period of transformation for the mortgage market; one that will help safe-guard future borrowers. New MMR regulations have played a part in the lending slowdown. Lenders are trialling their MMR ready systems in the run up to the full roll-out of regulation at the end of April. They are tightening up affordability checks, training staff and putting in place lengthier advisory processes. House purchase lending has dipped as a result.”
High LTV lending remains high proportionally, with one in six home loans to high LTV borrowers in March. There were 9,628 loans to borrowers with a deposit worth 15% or less of the total value of their property in March, 50% higher than twelve months before. This yearly improvement was also reflected in the average LTV – 63.3% in March 2014 compared to 61.4% a year earlier.
The Bank of England’s recent Credit Conditions Survey for Q1 showed the availability of high LTV loans to have increased significantly in 2014 Q1. The maximum LTV ratios available on many deals has increased significantly, meaning high LTV loans are now much more accessible, and high LTV borrowers have a larger range of offers to choose from.
High LTV lending is set to continue picking up. The latest First Time Buyer Opinion Barometer from LSL Property Services revealed the number of first-time buyers rose 42% in February, fuelled by expectations of further house price rises. 81% of first-time buyers – typically high LTV borrowers – anticipate further purchase price rises in the next twelve months, which is driving up demand at the bottom of the market. And the government has announced the extension of the Help to Buy equity loan scheme until 2020, which continues to attract more high LTV borrowers to the market.
Richard Sexton, director of e.surv chartered surveyors, explains:
“High LTV borrowers are a different breed to before the financial crisis. They are the product of an economy which has been ransacked by weak wage growth, high house prices and low savings – all of which have made it more difficult to save for a deposit. Help to Buy has re-opened the housing market to a whole host of borrowers who couldn’t afford to save a proportionally larger deposits. Borrowers predict prices will keep rising, and they are keen to get onto the ladder while they can.
“In the run up to the Budget, there was a great deal of pressure on the Chancellor to cut Help to Buy – which has taken the rap for heating up the housing market. But rather than being cut-back, the equity loan scheme has been extended until 2020. Now there’s a sense of certainty. Help to Buy is here to stay. High LTV lending will continue.”
“The increase in high LTV lending comes hand-in-hand with more credit regulation. Lenders must check borrowers can afford their repayments, even as interest rates rise. MMR may slow lending while lenders adjust to the new rules, but in the long run it will ensure borrowers are better informed about important financial decisions, and protected against making potentially detrimental choices.”
There is huge variation in high LTV lending throughout the country. In the North East & Cumbria, one in four loans were to high LTV borrowers, more than six times more than in London, where only one in every twenty-five loans were to high LTV borrowers.
Richard Sexton, director of e.surv chartered surveyors, explains:
“House prices have risen quickly in London and the South East, and borrowers in both regions are feeling the effects. In the capital, just four in every 100 loans were to high LTV borrowers in March. House price growth is now rising beyond the grasp of the bottom of the market in London, which has also contributed to the fall in monthly lending. The London market needs an injection of affordable homes, in order to keep the bottom of the market alive and kicking.”
