The proportion of gross advances at an LTV over 90% increased by 1 percentage point over the quarter to 4.6% in Q2 2014, the highest since Q4 2008. Compared with the previous quarter, the proportion of gross advances to borrowers with a single income multiple of more than 4.00x increased by 30bps to 11.9% in Q2 2014.
The proportion of gross advances to borrowers with joint income multiple of more than 3.00x increased by 2 percentage points since Q1 2014 to 28.8%. The proportion of new lending that is a combination of an LTV over 90% and loan-to-income multiple of over 3.5x for single income borrowers (or 2.75x for joint income borrowers) increased over the quarter by 0.8 percentage points to 3.4%, the highest since Q2 2008.
The amount of gross advances for house purchase increased by £4.8 billion in the period compared with Q1 2014. It was also 33% higher compared with Q2 2013, and stood at £36.1 billion.
Fixed rate mortgages continued to be the dominant product choice, increasing for the seventh consecutive quarter to 82% of gross advances in Q2.
The value of FTB loans increased by £3.4bn over the past year to £11.4bn in the quarter, accounting for 22.1% of the market in Q2 2014 up from 20.1% in Q1 2014.
Buy-to-let lending increased to £7bn in Q2 2014. This was the highest quarterly amount since Q2 2008. Although the buy-to-let proportion of lending decreased from 14.4% in Q1 2014 to 13.6% in Q2 2014, this represented an increase over the past year of 1.5 percentage points.
Simon Crone, Vice President – Mortgage Insurance Europe for Genworth, comments:
“The jump in high loan to value lending shows the Help to Buy mortgage guarantee is doing the job it was designed for by reviving this part of the market. Even so, it is wishful thinking to expect that the outlook for first time buyers will be permanently improved by a temporary fix in a market whose mechanics have fundamentally changed since the recession.
“First time buyer lending still amounts to just 22% of activity when it once averaged 40%, so it is no surprise that owner-occupation has suffered as a result.* The recent rise in loans with a high loan to income (LTI) multiple shows how affordability continues to be stretched by rising house prices and subdued wages. Actions from the Bank of England and individual lenders following the Mortgage Market Review (MMR) have been designed to keep the associated risks in check, but the UK market is clearly facing a juggling act to balance support for homeownership with maintaining financial stability.
“Other countries have answered this long term challenge through a permanent mortgage insurance framework, allowing lenders to transfer risk to the private insurance sector which is better designed to bear it. Adopting this approach would give UK regulators a way to monitor the flow of credit, incentivising it in down cycles and encouraging restraint if activity heats up: helping to keep this vital part of the UK mortgage market open to first time buyers and operating on a more secure footing.”
