There were 66,279 house purchase approvals in July, 7.5% higher than the 61,651 approvals in July 2013. It was the strongest July for house purchase lending since 2007, when there were 112,291.
On a monthly basis, house purchase approvals topped 66,000 for the second consecutive month, suggesting the mortgage market is adjusting to the introduction of Mortgage Market Review regulations. Monthly mortgage approvals were 6.9% higher compared to 62,007 in May – the first full month in which lenders had to be fully compliant with the new MMR regulations (introduced on 26th April 2014).
Richard Sexton, director of e.surv chartered surveyors, explains:
“After a period of adjustment, the mortgage market has navigated around the regulatory speed-bumps and the lending recovery is firmly back on course. Training staff, implementing the new rules and putting in place longer advisory processes caused a slight slowdown in lending in April and May. But lending levels have bounced back, and the bottleneck of approvals stuck in the system has cleared.
“Not only that, the prospect of an interest rate rise is creeping ever closer, and is encouraging more borrowers to lock into cheap fixed-rate deals while they can – which is also pumping up lending volume.”
High LTV lending continued to drive the market forward in July. There were 11,533 loans to borrowers with a deposit worth 15% or less of the total value of their property, 52.1% more than 7,583 twelve months before.
High LTV loans accounted for 1 in 5 house purchase approvals in July 2014, compared to 1 in 9 in July 2013. And the average LTV was 62.6% - compared to 60.6% a year ago.
A dwindling supply of the most affordable properties is forcing more borrowers – in particular first-time buyers – to take out larger loans. There were 13,256 approvals on properties worth £125,000 or less in July 2014, 13.0% fewer than 15,244 twelve months before.
But increased willingness among banks to lend to high LTV borrowers has ensured the first-time buyer market has stayed strong. There were 30,000 more first-time buyers in the first half of 2014 than in the equivalent period in 2013, according to the latest First Time Buyer Tracker from LSL Property Services.
Richard Sexton, director of e.surv chartered surveyors, explains:
“The market is awash with first-time buyers keen to get on the property ladder before prices climb any further upwards. Many of them fall into the ‘high LTV category’ because they simply cannot build a large deposit whilst savings rates remain low and wage growth remains weak. This doesn’t mean they should be locked out of the property market. It does mean that they need further support to get their foot in the door in the first place.
“Help to Buy has offered one such solution to the problem of saving for a deposit – and encouraged many first-timers back to the market. But with several large lenders cutting back on lending through the Help to Buy, many are asking if the scheme has reached its sell-by date. If other lenders follow suit, the array of options available for high LTV borrowers will be substantially narrowed, and first-timers may find themselves having to rely even more heavily on the Bank of Mum and Dad – a resource that has been drying up whilst savings rates have remained low. It will hit hardest in the capital, where prices, and deposits, have been growing at the fastest pace.”
The Bank of England’s Financial Policy Committee has announced further regulation for the mortgage market. From the 1st October, banks must limit lending to buyers at income ratios of 4.5 or above to 15% of the total number of mortgage loans.
The North West and Yorkshire contained the highest proportion of high LTV borrowers in July, with 28% and 25% of loans to high LTV borrowers respectively. In London, the proportion of loans to high LTV borrowers increased 3% month-on-month, but remains 10% below the national average.
Richard Sexton said:
“Help to Buy is particularly needed in the North of the country – where high LTV borrowers make up a far greater proportion of borrowers. The economic recovery has been slowly filtering out to the fringes of the UK, but many areas are still stuck in recovery mode.”
