High LTV lending reached a post-financial crisis record in June, hitting their highest level since September 2008. There were 7,046 loans advanced to borrowers with a deposit of less than 15% during the month, up 47% from 4,790 in June 2012.
The improvement in high LTV lending was the catalyst behind a 23% year-on-year increase in total house purchase lending. There were 58,321 house purchase approvals in June, up from just 47,422 in June last year, making it the strongest June for house purchase lending since 2007.
There were 3% more high LTV loans in June compared to May, continuing the trend of high LTV borrowers forming a bigger share of the house purchase market.
The sharp increase in the number of high LTV borrowers in June was the result of a significant and sustained improvement in the availability of high LTV mortgages since the start of the year. Lenders are more willing to grant house purchase loans to borrowers with small deposit, and have introduced a wider range of low rate mortgages into the market aimed at first-time buyers.
The Bank of England’s Credit Condition Survey revealed a sustained effort by lenders to increase their high LTV lending in Q2. And the survey revealed that lenders are planning to increase their lending levels to buyers with just a 10% deposit in the third quarter of the year. The survey also showed that demand for house purchase loans is picking up, as confidence grows amid an improving economic outlook.
The improvement in high LTV borrowers – most of which were first-time buyers – was reflecting in the growing number of loans on properties under £125,000 in value (typical first-time buyer property). There were 13,975 loans approvals for purchase of property worth under £`125,000, 34% more than this time last year, when there were just 10,433. While partly reflecting improving house prices, the increase does this reflect two changes in the market: The first – rising demand, as confidence in the economy returns. The second: more first-time buyer activity, and the wider availability of high LTV loans.
Home loan numbers were flat month-on-month in June, but in May lending levels reached a high not seen for 41 months. Sustained high levels this month confirm that it’s a trend rather than a freak high. The average monthly lending figure over the last twelve months was just 53,248 – June levels were 9% above that average.
Richard Sexton, director of e.surv chartered surveyors, explains:
“Last year the lending market was thorny for first-time buyers. Typically, they have less equity, so banks eyed them with caution – property prices need only fall a little before a high LTV borrower falls into negative equity, and the bank stands to lose. But over the last year, lenders have softened the process for them to get a house purchase loan.
"Buoyed by Funding for Lending, and having had enough time to adjust to regulatory requirements and balance sheet restructurings, banks are more prepared to lend to first-time buyers. They’re introducing more products geared specifically for high LTV borrowers, and taking up Government schemes like Help to Buy and rolling them out to the masses.”
South East dominance
The increase in lending is skewed towards the South East and London, where more people are able to meet lending criteria. Despite the sunny news, house purchase loans seem a long way off for many buyers, as they struggle to save for a deposit, amid rising house prices, weak wage growth and high inflation.
On a national basis, LSL Property Services revealed that house prices in May were £6,125 higher than a year ago, meaning buyers have to build bigger deposits. For some first-time buyers this is enough to prevent them from buying: the average deposit for a first-time buyer is now £27,178, and represents 81.7% of their wage.
Remortgaging activity in the South East and London is also high. Borrowers with equity are remortgaging to access the better rates on offer, helping them to pay down debts. This is further increasing regional activity.
Richard Sexton explains:
“Lending has risen hugely since last year, it’s true. But there’s a twist in the tale. The increase in lending has been focussed in the hot spot of London, and the surrounding South East. It’s not a deliberate policy from lenders, it’s just a case of there being more equity-rich buyers in the South East. Employment levels are higher there than the rest of the country, wage growth is stronger, and it is generally more affluent than all other areas of the country.
“Outside of the South East, comparatively few people are able to build up a substantial deposit and meet lending criteria. High inflation and rising house prices are bogging down potential buyers, and slowing their progress to purchase, by swallowing their savings. The increase in lending is still to filter through to many.”
