Mortgage lending increases by 45%

House purchase lending increased by 45% year on year in March, making it the ninth consecutive month of year-on-year growth, according to the Council of Mortgage Lenders.

Related topics:  Mortgages
Millie Dyson
17th May 2010
Mortgages

Remortgaging, however, was 29% down year on year, the 23rd consecutive annual fall. This plainly shows the continuing trend of recovering house purchase activity but a moribund remortgage market.

The 45,000 loans for house purchase in March (worth 6.3 billion), were up 25% in volume (24% in value) from February and the 28,000 loans for remortgage (worth 3.5 billion) were up 23% in volume (21% in value).

For the first quarter as a whole, there were 112,000 loans for house purchase (worth 16.1 billion), down from 171,000 (worth 23.3 billion) in the last quarter of 2009 and 74,000 remortgage loans (worth 9.3 billion) down from 89,000 (worth 11.1 billion) in the last three months of 2009. No trend can be inferred from this though, given the distortion caused by the end of the stamp duty holiday in December.

First-time buyer activity is now rebounding faster than home-mover activity with 17,300 loans to first-time buyers (worth 2 billion) in March, up 27% on February and 42% on March 2009. The 27,500 home-mover loans (worth 4.3 billion) was a 24% rise in volume (23% in value) on February and a 49% rise in volume (65% in value) on March last year.

March also saw first-time buyers borrow an average of 76% of the property price for the second month running. This is the first time average deposits for first-time buyers have been lower than 25% for more than one month since January 2009. Only time will tell if this genuinely reflects a tentative sign of easing, but for the time being deposit constraints remain tight in all areas of lending.

For those with the deposits needed, low rates have made home loans initially very affordable. Home movers in March needed less than 10% of gross income to cover their mortgage interest payments. This is unchanged from February and is the lowest amount since the CML started recording this data in 1974.

First-time buyers have not seen quite as much benefit reflecting the fact that the best priced deals are available only to those with larger deposits. But even so, in the first three months of 2010, they needed just 13.3% of their income to cover their interest payments, the lowest since 2004.

In terms of product choice, only 46% of new loans were fixed-rate deals in March. This has remained broadly unchanged for the first three months of 2010, but is down from 60% in the last quarter of 2009 and a peak of 80% last July. Tracker rates accounted for 37% of new mortgage lending, again broadly unchanged, but up from last July's low of 12%.

Commenting on today's figures, Michael Coogan, director general of the CML, said:

"Today's figures indicate there is currently some momentum to house purchase lending, but for the sake of the future health of the housing and mortgage markets, the new government will need to focus on the critical issue of funding and how to address the issues arising from the repayment of the emergency support provided during the financial crisis.

"The UK is at risk of a chronic under-supply of credit and the rationing of mortgages for customers for years to come."
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