Lending for both house purchase and remortgaging were affected by a lull in activity in October. There were 46,000 loans for house purchase (worth £6.7 billion), down 4% in number and 6% by value from September.
The total was 16% lower (12% by value) than in October 2009, but lending numbers in the final quarter of 2009 were boosted as buyers brought forward transactions to take advantage of the stamp duty holiday. Remortgaging showed a similar pattern, with 26,000 loans (worth £3.1 billion) advanced in October, down 9% (11% by value) from September, and 21% lower (24% by value) than in October 2009.
Loans for house purchase and remortgage
There were 17,000 loans to first-time buyers in October, worth £2 billion, a decrease of 5% by volume and 9% by value from September, and 19% by volume and 17% by value on a year ago. Home movers were similarly affected, with the 29,400 loans (worth £4.7 billion) advanced, representing a 3% drop by volume (6% by value) from September, and a 14% reduction by volume (10% by value), compared to October 2009.
First-time buyers, lending and affordability
Loan-to-value ratios appear to have eased in October. On average, first-time buyers borrowed 80% of the property's value in October, up from 76% in September. But the average income multiple to a first-time buyer declined to 3.19 from 3.26 in September.
This is partly explained by the recent fall in house prices leading to lower loan amounts being advanced for house purchase. The same applied to movers. The average loan-to-value for movers was 69%, up from 67% in September, while the average income multiple was 2.84, down from 2.89 in September.
Home movers, lending and affordability
The take-up of repayment mortgages in October was the highest in more than five years for both homebuyers and those remortgaging. 93% of first-time buyers took out a repayment mortgage in October, the highest proportion since records began in 1974, showing a clear shift away from a pre-2007 norm of around 30% of first-time buyers opting for interest-only mortgages.
This shift shows lenders have been adjusting their loan criteria in anticipation of possible regulatory changes, and a recognition that repayment mortgages may be in the best interests of less experienced borrowers such as first-time buyers.
Michael Coogan, director general of the CML, commented:
“With 2009 lending levels artificially inflated by the end of the stamp duty holiday, we expected to see a decline in lending year-on-year, so today’s figures are not surprising. Consumer confidence has also been affected by October's spending review, despite the relative affordability of monthly mortgage payments, and so a stable but small lending market will continue for some time to come."
David Brown, commercial director of LSL Property Services comments:
“Mortgage lending remains in the doldrums as lenders continue to prioritise their balance sheets over new lending. The good news for those who have actually secured a mortgage is that the cost of monthly repayments is dropping.
"The average first-time buyer pays just 13.3% of their monthly income on interest payments – a drop from September. But borrowers should not become dependent on unsustainably cheap mortgage payments to get by each month. Interest rates remain at an historic low, which is keeping monthly payments down artificially.
"While this is likely to continue well into 2011, interest rates cannot stay low forever. And when they do rise, the cost of repayments will head north. In an ideal world, borrowers would have been using the low rates to pay off more of their mortgage.
"However, thousands have become accustomed to more disposable cash each month, and have enjoyed a more expensive lifestyle instead. If these borrowers are caught unawares, rather than remortgaging onto affordable fixed-rate deals - or getting their household finances in order, we may well face the prospect of surging arrears when interest rates eventually rise.”
Richard Sexton, director of e.surv, commented:
“October was the low point of a very tough year for the housing market. Lenders restricted finance still further as they worried about the direction of the market and the impact of next year’s public sector job losses. This is why first time buyers are being hit the worst.
"They tend to buy cheaper homes, which the LSL / Acadametrics house price index has shown to be performing worst on price recently. For first time buyers falling prices might sound like great news, but lender’s aren’t confident they will get their money back if they’re forced to repossess and that’s making it desperately hard to get a mortgage.
"And for the vast majority who aren’t buying a new home with a loan from the bank of Mum & Dad, no mortgage means no home, no matter how far prices slip. On top of that, first time buyers are the most at risk of unemployment if the economy does underperform, which also flags them up as a risky prospect for lenders.
"However, in November we noticed approvals and LTV ratios bounce back, as banks and building societies realised they needed to use up the spare lending capacity they’d accumulated over the year. This good performance should feed through to the property market by December, giving house prices an end of year boost.
"The problem is, lenders look set to fall back on a very conservative strategy once the new year begins. And with their impending liabilities under the Special Liquidity and Credit Guarantee schemes, and the looming arrival of Basel
