Mortgages take back seat as cash & equity fuel market recovery: IMLA

Mortgage lending made its smallest contribution to the financing of house purchases since before the recession as buyers used cash and equity to move in 2013, according to the Intermediary Mortgage Lenders Association.

Related topics:  Mortgages
Amy Loddington
21st February 2014
Mortgages

The percentage of buyers using a mortgage fell from 76% in 2006 to 65% in 2008 at the onset of the recession. Having recovered to 67% in 2010, it dropped again to a new low of 62% last year.

Mortgages also contributed less than 40% of the total value of property transactions in 2013 for the first time since current records began. This was down from 47% in 2010 and even lower than in the depths of the recession when mortgages contributed 45% in 2008.

The analysis from IMLA’s report, What is the new ‘normal’?, means that for every £10 spent on house purchases in 2013, mortgages contributed just £3.98. It suggests while access to mortgages improved last year and the number of approvals rose, the market remains subdued and continues to favour existing owners or buyers with access to substantial cash and investments.

The report argues that three key challenges must be successfully managed to allow the mortgage market to recover fully in the long term, so lenders can meet pent-up demand from first-time buyers and support the full range of responsible borrowers.

They include: the unwinding of support measures such as Help to Buy and quantitative easing; tackling the ‘woefully inadequate’ level of new housing supply; and ensuring the new ‘triple-lock’ of regulation (tougher capital adequacy rules for lenders, the Mortgage Market Review and the new macro-prudential framework) does not excessively subdue the market.

Peter Williams, Executive Director for IMLA, commented:

“It is only recently that responsible borrowers have begun to enjoy a better chance of getting a mortgage. The shift towards cash and equity for property purchases may be less of a concern if you already have your foot in the door. But plenty more people are still shut out, even when their income and financial track record means they can sensibly manage a loan.

“We are a long way from a normal mortgage market and must stay focused on improving access for responsible buyers who cannot hope to conjure up a vast sum of cash or equity. The growth of lending in the last six months has been achieved with significant help from government. The industry has the capacity to lend more without compromising on standards and it is now time for industry, government and regulators to work through how and over what timescale we can restore the market to full health in the longer term.”

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