In December, the average loan-to-value offered by mortgage lenders soared by just over one percentage point in the month to 58.9%, the highest level since the December 2008 post Lehman’s low of 49.4%, according to the e.surv, the UK’s largest Chartered Surveyors.
The expansion in LTVs was driven by those buying homes worth over £500,000 who were offered an additional 2.8% of the value of their property in December compared to November (see overleaf for more detail on LTVs).
Meanwhile, the volume of mortgages approved for house purchase dipped slightly in December, down 0.5% after a strong rise in November. e.surv project that 47,763 mortgages were approved in the month, the second highest volume since August, suggesting the market remains more buoyant than some fear- particularly as some approvals may spill over into Jan as a consequence of difficult December weather Year on year.
December 2010 was 17.3% below December 2009 which had been boosted by a rush to take advantage of the stamp duty holiday. Despite the outcome being better than some feared, December 2010 was still the second lowest on record for mortgage volumes.
Richard Sexton, business development director of e.surv said:
“December’s mortgage market contended with impossible weather conditions, and a strong November, but was relatively resilient with only a small decline in volumes, and a big improvement in the loan-to-value ratios offered by lenders.”
Wealthy borrowers scarcely affected by mortgage squeeze – volumes and LTVs hold up best at top of market. In December, the average loan-to-value ratio hit a two year high, but at 58.9% in December 2010, it remains well below the peak of over 69% in 2006.
Once again, those buying higher value homes have received the most generous treatment from lenders, seeing the biggest expansion in LTV ratios. The table below shows how those buying homes valued at over £500,000 have seen LTVs expand 14% points since the market’s nadir, and can still borrow almost as much as they could before the credit crunch.
Those at the bottom of the market are still seeing lenders offer mortgages at significantly tighter LTVs than before, despite some improvement since the post-Lehman’s freeze.
Some borrowers have barely noticed the mortgage drought. Since Q2 2007, just before the credit crunch began, the volume of mortgages offered to those buying homes valued between £500,000 and £750,000 has only fallen 22%, while those over £750,000 has fallen merely 2%.
By contrast the volume of mortgages offered to those buying the cheapest homes (less than £125,000) has fallen 71%. The volume of mortgages on the average home is two thirds lower than the peak. Since the nadir of the mortgage market at the end of 2008, the recovery has been somewhat faster for higher value properties too, despite the much bigger falls at the bottom of the market.
Richard Sexton concluded:
“There is no doubt lenders are being selective with their limited funds, growing their business by supporting wealthier customers and offering them ever more generous terms. For the long-term health of the housing market, borrowers and lenders alike, it is important that the bottom of the market is not neglected.
"Lenders recognise this and more recently there are signs of improvement for lower value borrowers who will provide the next generation of those trading up in the market, but one swallow does not make a summer, and the mortgage market, like the country, is still suffering from the freeze.”
