e.surv’s latest Mortgage Monitor reveals house purchase lending surprisingly fell by 11% in February from 54,719 in January to 49,019, the lowest level since July 2012. The fall comes despite a wider and cheaper range of mortgages on offer, suggesting the drop in lending was due to weakening borrower demand - not a decline in the availability of mortgages. The rising cost of living, chronically low savings rates, and uncertainty over the future of the economy has encouraged more would-be buyers to consolidate and pay off debts rather than make the step onto the housing ladder.
It is the second successive month that house purchase lending has fallen, reversing five consecutive months of rises in lending between August and December last year.
Encouragingly, lending to high LTV borrowers increased as a proportion of overall lending, suggesting mortgage availability for first-time buyers is improving. Lending to borrowers with a deposit of 15% or less increased to 12.3%, or 1 in 8 loans, the highest proportion since January 2012. The average LTV also rose to its highest level since January 2012, at 61.3%, after consistently tracking below 60% for most of 2012. This suggests the fall in house purchase lending in February was caused mainly by fewer loans to low LTV borrowers.
Richard Sexton, business development director of e.surv chartered surveyors, explains:
“House purchase lending has fallen despite a wider and cheaper range of mortgages on offer from lenders. The root cause is difficult to discern: the bad weather at the beginning of the year and a fall in demand for mortgages, rather than a tighter supply of the, may both be factors. More would-be buyers are focusing on consolidating and paying off debts, and are reluctant to purchase a new home while their finances are being pillaged by high inflation and record-low savings rates. High LTV lending increased as a proportion of overall lending in February, and now accounts for 1 in 8 loans compared to just 1 in 11 during most of 2011, suggesting the availability of mortgages for first-time buyers is actually improving.”
Despite poorer than expected uptake of Funding for Lending, the scheme has prevented much steeper falls in lending. The Bank of England’s latest figures show that overall net lending has contracted by £1.5 billion since the introduction of FLS, but banks have drawn down £13.8 billion from the scheme, suggesting they are using it to cushion the market against an even sharper fall in lending.
It has also improved the cost and availability of mortgages. Since the scheme began last August, over 300 new first-time buyer mortgages have entered the market, and rates on fixed rate mortgages have fallen to record lows.
Richard Sexton explains:
“Critics have been quick to jump on Funding for Lending and paint it as impotent. Net mortgage lending has fallen £1.5 billion since the scheme began, but without it the fall in lending would have been much steeper. Despite a weaker than expected use of it by banks, Funding for Lending is bracing the mortgage market and preventing it from buckling under the pressure of tight credit conditions, a stuttering economy and weak household finances.
Its problem is two-fold. First is scale. The scheme is working, but it is not large enough to cancel out the negative impact of tight credit conditions and a weak economy. It needs to be enlarged. Second is the time it takes for mortgage applications to translate into actual loans. The lag time means we’ve only just begun to see the effects of the scheme. The full force of FLS should begin to hit the market over the next few months. House purchase lending should increase; high LTV lending should increase; and rates should remain low for quite some time. It’s certainly not all doom and gloom.”
