A fall between December and January is usually expected but a decrease of this magnitude is greater than seasonal factors alone would explain.
A mixture of factors probably led to this drop.With the effects of last year's government spending cuts beginning to bite, and rising inflation and tax measures putting pressure on household budgets, potential house-buyers are likely to have been discouraged.
This, coupled with December's extreme winter weather, and uncertainty over future interest rate rises, has led to a lack of movement in the mortgage market.
There were 28,500 loans advanced for house purchase, worth £4.2 billion, in January, a fall of 29% by number and 26% by value on December.
This was also a 12% fall by number (13% by value) from January 2010 and, given that the rush to purchase at the end of 2009 due to the stamp duty concession led to an artificially low level of lending in early 2010, this represents a substantial year-on-year fall.
It is likely given the mix of factors that led to the fall in January, that the market will remain flat. However, one month's data is not conclusive of the likely spring trend, especially in a low volume market where changes can be exaggerated in month-by-month percentage comparisons.
Loans for house purchase and remortgage
The effect on remortgage activity was not as pronounced. The number of loans advanced in January dropped 6% (7% by value) from December. There were 22,100 mortgages, worth £2.7 billion, advanced in the month, a fall from the previous January of 5% by number and 10% by value.
Remortgaging increased its share of total lending from 27% in December to 28% in January. With Bank of England figures showing an increase in remortgage approvals in the last three months, this should feed through into higher CML remortgage completion figures during the next few months.
First-time buyers, lending and affordability
The fall in house purchase lending was split equally between first-time buyers and home movers. First-time buyers took 10,500 loans, worth £1.2 billion, in January, down 28% by number (29% by value) from December. Home movers saw a fall of 29% by number from 25,400 to 18,000 (28% by value from £4 billion to £2.9 billion) from December to January.
Home movers, lending and affordability
On a positive note, first-time buyers borrowed 80% of their property's value in January, compared to 77% in December, and for home movers the loan to value ratio remained stable at 68%.
CML director general Michael Coogan said:
"Pressures on household budgets have been increasing both in terms of take home pay, and indirect tax measures such as the VAT increase and recent inflationary pressures, so we were expecting a fall in transactions early in the year, and a flat mortgage market underpins our forecasts for 2011.
"The bad winter weather and uncertainty over interest rate rises will have exacerbated the fall in lending in January, so it would be premature to draw any firm conclusions about activity levels over the next few months. The market remains stable at low levels of transactions."
Jonathan Moore, director of Easyroommate.co.uk comments:
“The mortgage market hasn’t just stalled, it has spluttered to a halt and the wheels have fallen off. So few affordable mortgage products for first-timers mean 141,000 fewer young buyers have got on the housing ladder in the last two years than normal, and, together with their partners, are relying on rental accommodation.
"Young buyers already have record high student debts to repay, record rents and a growing cost of living – then lenders expect them to stump up a deposit of £25,000 on average – a herculean feat for most. As long as lenders lack the appetite to lend enough money to those who need it most – young first-time buyers, thousands will simply stay in rental accommodation.
"With such a strong influx of renters in the last year, it’s no wonder that the private rental sector is creaking under the strain, and rents are at record highs.”
Paul Hunt, managing director of Phoebus Software said:
“Lending in January was far below seasonal expectations and even pessimists in the industry will be surprised by the sharpness of this fall. We’ll have to wait for the figures from a relatively balmy February to see how much of this fall was a result of the cold weather, but it’s inconceivable that the onset of public sector tax cuts weren’t largely to blame for the falls.
"House prices where there is significant public sector employment fell in both January and February and the latest index from LSL/Acadametrics showed that in northern England and Wales annual house prices are now down by more than 2.6%.
"In areas like London and the south-east, the loss of public sector jobs is a less pressing concern and demand for property has held up strongly which indicating more generous lending. Elsewhere, lenders are rightly concerned about the onset of high unemployment and the floodgates will remain closed until fundamental concerns about the economic future have been allayed.”
Brian Murphy, head of lending at independent mortgage broker, Mortgage Advice Bureau, said:
"The low level of loans advanced in January is a reflection of the usual pre-Christmas slowdown, low consumer confidence generally and the extreme weather in late November and December.
"All three factors caused a reduction in applications in late 2010, which resulted in the fall in actual loan advances during the first mo
