e.surv’s latest Mortgage Monitor reveals mortgage approvals climbed 17% from 55,785 in December to 65,184 in January, making it the strongest month for house purchase lending since February 2008 – before the financial crisis. It also marked a 13% improvement on January last year. It is the strongest indication yet that the mortgage market is beginning to recover and regain some of its pre-2008 health.
The improvement in lending was driven by high LTV borrowers and first-time buyers, who accounted for the biggest overall share of the increase. Lending to borrowers with a deposit of less than 15% increased by 30% between December and January, reflecting a significant improvement in the availability and affordability of first-time buyer loans. 1 in 8 of all house purchase loans in January went to high LTV borrowers, the highest proportion since February last year (when first-time buyer numbers were artificially high thanks to the rush to beat the stamp duty deadline).
There were 7,758 loans to borrowers with a deposit of 15% or lower in January; the highest since February 2008. Lending to high LTV borrowers has been on a broadly upward trajectory since 2011. Throughout 2011, there was an average of just 4,808 high LTV per month. In 2012, that increased 13% to 5,325. And January saw an even greater rise of 30%, suggesting this year will see further improvements in conditions for first-time buyers.
Falling rates and a wider range of mortgages for first-time buyers were the catalyst for the improvement in January. Over the winter a number of major lenders launched their cheapest ever fixed rate mortgages, which quashed mortgages rates on 2 year fixed deals down from 4.44% to 3.92%. The cheaper funds delivered to lenders’ balance sheets by the Bank of England’s Funding for Lending Scheme was the root cause of the improvement in lending conditions. Since FLS launched, lenders have introduced more than 300 new house purchase mortgages.
The improvement in first-time buyer numbers is reflected in a sharp increase in the number of purchase loans on cheapest properties. There were 14,995 loans on properties worth less than £125,000 in January (a typical first-time buyer property), the highest since February 2008, and a 28% increase from 11,714 in December. The number of loans on more expensive property increased at a much slower rate, illustrating how the improvement in lending in January was focused mainly on first-time buyers.
Richard Sexton, business development director of e.surv chartered surveyors, explains:
“These are the most encouraging signs for the mortgage market since the financial crisis. After an inauspicious start last autumn, Funding for Lending has come good. It has flooded lenders’ balance sheets with cheaper funds, which has encouraged them to reduce mortgage rates to record lows and roll out a much wider range of mortgages for high loan-to-value borrowers. It is helping clear the logjam in the first-time buyer market.
The hope now is that January isn’t just a flash in the pan. There are plenty of reasons to believe it won’t be. Funding is cheaper. Borrower finances are better. And the Eurozone crisis lies dormant. All of this bodes well for the rest of the year. Lenders are more confident, and have been emboldened by Funding for Lending and by the relaxation of the speed at which they have to construct capital buffers.
Much will hinge on the economy. If it slides into a triple dip recession lots of the confidence which has been built up over the last few months will evaporate and the recovery will go up in smoke. There are also concerns over the government’s plan to electrify the ring fence between retail and investment banking. The voltage from this could shock lenders into focusing their efforts on restructuring their businesses, rather than on where it is needed: on new lending.”
