There were 68,996 house purchase loans in October, as approvals rose 3% from 66,735 in the previous month, pushing figures to a new post-financial-crisis record. Compared to October last year, approvals were 32% higher, equal to 17,000 more approvals. Compared to in January 2013, approvals have risen 27%.
The sustained recovery in lending has been driven further forward by the increasing number of loans that are being approved to buyers with smaller deposits. In October, there were 9,176 loans to borrowers with a deposit of 15% or less of the total value of the property, an increase of 15% to September 2013, and an 80% increase year-on-year. This represents the highest number of high LTV loans since April 2008.
But despite the increase in high LTV lending, the number of affordable properties is decreasing as house prices are being pushed up by a supply shortage.in some areas. There were just 13,799 loans on properties up to the value of £125,000 in October – typical first-time buyer stock – but this was 6% lower than in September.
Richard Sexton, director of e.surv chartered surveyors, explains:
“The mortgage market is bustling with activity, as further buyers migrate back to the market. Winter may be approaching, but that’s not dampening the spirits of potential homeowners, who are moving house, or buying into property in their droves. The sense of economic positivity, arising from rising house prices, falling unemployment and increased lender confidence is catching on like the common cold, and more people are looking to move. It’s a merry-weather market, with positive sentiment to match the season.
“Help to Buy is needed more than ever, as rising house prices could push more borrowers into the high LTV bracket. House prices have risen 4.3% since last October, according to LSL, but that hasn’t been matched by savings rates, or wage growth. The size of a deposit needed to access the best rates has risen – and many borrowers are now forced to take out mortgages with just a small deposit saved. It’s had a huge effect on first-time buyers, who haven’t seen their equity share increased.
“That’s where Help to Buy comes in. It provides a shortcut for buyers who lack the cash for chunky deposits to be backed by banks, by bolstering their deposits, so that they can access better rates. And it encourages lenders to support high LTV borrowers too. They have become less of a risk, because of the mortgage guarantee scheme, and are now more viable investments.”
Compared to the beginning of the year, the outlook for the mortgage market is far rosier. Approvals slid 2% between December 2012 and January 2013, and a further 4% in the month to February. But Help to Buy and Funding for Lending have busted that trend by encouraging banks to slash rates and boost lending, and the beginning of 2014 should see lending reach a fresh high. Approvals still fall far short of pre-2008, when they were consistently over the 100,000 mark, but they are increasing at a far more sustainable rate.
High LTV lending increased in every region of Great Britain in October, aside from Scotland and the North East and Cumbria. The increase in high LTV lending had a big impact in Yorkshire, where the number of high LTV approvals rose 18%, with high LTV borrowers accounting for 21% of the market. In London, LTV borrowers accounted for just 5% of the market, but the number of approvals was 21% higher than in September.
The North West remained the region with the greatest total number of high LTV borrowers in October, with 1,447 loans to borrowers with a deposit of 15% or less.
Recent research from e.surv reveals that although the mortgage market is speeding to recovery, there remain severe regional disparities. Court ordered repossessions fell 33% in the year to July 2013, but they fell far more quickly in the South, which has led to a widening North-South divide in repossessions. 72% of towns in the North had more repossessions than the UK average.
Richard Sexton, director of e.surv chartered surveyors, explains:
“Up until now, the recovery of the mortgage market has been focused in London and the South East, where the economic climate is picking up the fastest. Repossessions are falling more quickly in the South, and the bulk of lending is still to buyers who can afford larger deposits, and access lower rates.
“But even London and the South East aren’t immune to the difficulties caused by rising house prices. Climbing house prices spell good news for home-owners, who see their equity in a house dramatically increase. But there’s a flipside for first-time buyers, who struggle to save for a deposit. The biggest missing piece in the mortgage market recovery – and the piece which would help to resolve this – is house-building. Without greater construction, the imbalance between the supply of new houses and demand of new buyers will become all the more dramatic, competition for houses will drive prices further up, and more new buyers will be tipped out of the market.”
