Despite a seasonal monthly fall, house purchase lending increased by 11% compared to January last year. Driving this increase, first-time buyer and home mover activity rose compared to January last year, while remortgage lending was still 23% lower than at the start of 2012.
House purchase lending
A total of 38,300 loans were advanced for house purchase in January, down on the 45,900 taken out in December, but an increase from the 34,600 loans advanced in January last year. By value, house purchase lending totalled £5.7 billion, compared to £5.2 billion in January last year, and £6.9 billion in December 2012.
Continuing the underlying trend for increased house purchase lending, January marked the best start to a year since 2008 - when 47,800 loans were advanced.
Both first-time buyer and home mover lending contributed to the rise in January compared to the same time last year, but the increase in lending to first-time buyers was proportionately higher.
First-time buyers
A total of 15,900 loans (worth £2 billion) were advanced to first-time buyers in January, up by 24% compared to January last year (12,800 loans), but an 18% fall from December 2012 (19,500 loans).
It was the largest January total since January 2008 when 17,700 loans were advanced.
For the third consecutive month, first-time buyer activity accounted for 42% of all house purchase loans, suggesting that the market remains more favourable for first-time buyers.
There was also a slight shift towards cheaper properties among first-time buyers with a small increase in the proportion of properties bought for less than £125,000. This increase is likely to reflect monthly variation and is largely in line with recent months.
Associated with this, first-time buyers typically borrowed a smaller amount in January than in December - both in absolute terms and relative to their income. First-time buyers typically borrowed 3.2 times their income in January, down from 3.28 times in December and 3.23 in January last year.
The average loan-to-value ratio remained at 80% for first-time buyers in January - essentially unchanged for over two years.
Home movers
A total of 22,300 loans (worth 3.7 billion) were advanced to home movers in January. This was a 3% rise (by both number and value) compared to January last year, but a 16% fall from December.
Following a similar trend to first-time buyer activity, the number of loans advanced to home movers in the first month of the year reached its highest point since January 2008.
Remortgage lending
In January, £3 billion was advanced for remortgaging, an increase of 3% on December 2012 (£2.9 billion) but still 23% lower than January last year (£3.9 billion). Remortgage lending remains subdued but it now appears to have stabilised at this lower level, after falling sharply throughout 2012.
Commenting on the data, CML director general Paul Smee said:
"Seasonal factors clearly had an impact on lending figures in January, but it still remains the best start to a year since 2008. Mortgage finance is available and lenders are open for business, allowing more borrowers to take the step into homeownership or move house in line with their needs."
Mark Harris, chief executive of mortgage broker SPF Private Clients, says:
'January is never the busiest month of the year for the housing market as it tends to get off to a slow start after Christmas and the New Year but the numbers look particularly good when compared with previous Januarys, suggesting recovery is underway.
'Encouragingly, there are more first-time buyers around helping boost these numbers, which is crucial to the health of the housing market. They are still putting down a 20 per cent deposit, on average, and with the Funding for Lending Scheme (FLS) making more deals available at 90 per cent loan-to-value, this should further increase the number of first-time buyers able to get on the housing ladder in coming months.
'Remortgaging numbers are still subdued, perhaps surprisingly when there are so many excellent deals out there at the moment. It may be that borrowers are sat on attractive reversion rates or SVRs so don't wish to remortgage, or perhaps they are trapped because of tighter criteria or lack of equity in their homes so can't switch. There may also be borrowers holding out for even better rates but with the Government's threat to divert more FLS money towards small businesses rather than mortgage borrowers, there may be more urgency in coming weeks to secure a deal before it disappears.
'It is too early to call whether FLS is a success or not so a knee-jerk reaction in the form of forcing lenders to do more lending to small businesses rather than mortgage borrowers might be a mistake. We have been seeing a mortgage price war as a result of the FLS and that has been positive. Positioning in the best buy tables or on price comparison sites is important to lenders and cutting rates helps achieve this, even if fees have to edge higher to make such low rates possible.
'Funding for Lending is helping lenders offer ever lower rates but admittedly it is making already very cheap mortgages even cheaper. There are signs that it is helping the higher loan-to-value products but only slightly and more 'rippling' needs to happen. That should come as demand for the lower LTV products fails to keep up with supply and lenders start hunting for business in higher LTV bands.'
Ben Thompson, MD Legal & General Mortgage Club, commented:
“It is clear that we are at a crucial stage of the housing market recovery. We have seen a variety of data suggesting that the market is ‘flattening out’ as a prelude to a slow and steady climb back to something which could be termed ‘normality’. This consensus on a return of positive sentiment to the market seems to be shared by the majority of sources including the CML today. Our own data in conjunction with Cebr shows that the value of the average home is expected to return to pre-crisis levels of £227,000 by the year 2015, and to reach £254,000 by 2017.
The challenge now is for the Chancellor to encourage this tentative recovery as much as possible in the Budget. Whether through mortgage innovation, mortgage insurance, a change in stamp duty rules or a combination of all three we simply need to help the very welcome but fragile recovery that FLS has stimulated.”
Ashley Brown, director, mortgage broker Moneysprite said:
"The strongest start to a year since 2008 for house purchases is exactly the news the property market needed to hear. Now let's hope it kicks on from here.
Despite early doubts about the effectiveness of the Funding for Lending Scheme, it's now the main reason why lenders are offering more competitively priced products, and most crucially at the first time buyer end of the market.
The return of the first time buyer relative to January last year is particularly welcome. Without the first time buyer, the market cannot improve. With many people on very low rates, it's no surprise that remortgaging remains subdued. But some of the record low rates being offered at the moment may see a pick-up in this area. It's vital that funds from the Funding for Lending Scheme don't dry up. If they do, lenders will once again head for the safe haven of higher deposit borrowers and we'll be back to square one. We definitely need to see more lending to small businesses but this mustn't come at the expense of mortgage lending."
Richard Sexton, director of e.surv chartered surveyors, said:
“Life is becoming easier for first-time buyers. Although deposit requirements are still high, rates are lower and banks are more willing to lend to lower income borrowers. High LTV lending rose in January and accounted for 1 in 8 of all house purchase loans, compared to 1 in 12 six months ago. The market is showing remarkable resilience to the wider problems in the economy. Funding for Lending can take some of the credit: it is plugging the punctures in the mortgage market and stopping it from falling flat.
The government’s is right to propose an extension of the Funding for Lending scheme. It will help brace the mortgage market against the effects of austerity, and will provide a cushion against funding squeezes, which will encourage banks to sustain lending levels even if economic growth continues to stunt. But telling lenders to focus the cheaper funds on SMEs, rather than on mortgage lending, would be a real blow to the housing market.”
