Lending for home purchases fell by 40% in April compared with the previous month but experts point out this was a blip due to an unusually high level of borrowing in March ahead of stamp duty change.Home owners borrowed £8.1 billion, down 4% compared to a year ago and took out 47,300 loans, down 31% on March and 5% on April 2015, according to the latest figures from the Council of Mortgage Lenders.
First time buyers borrowed £3.9 billion, down 11% on March but up 15% on April last year. This equated to 25,100 loans, down 9% month on month but up 7% year on year.
Home movers borrowed £4.3 billion, down 53% on March and 14% compared to a year ago. This represented 22,200 loans, down 46% month on month and 15% on April 2015.
Remortgage activity totalled £6 billion, up 25% on March and 40% compared to a year ago. This came to 34,800 loans, up 23% month on month and 30% compared to a year ago.
Landlords borrowed £2.5 billion, down 65% month on month and 7% year on year. This came to 16,100 loans in total, down 64% compared to March and down 10% compared to April 2015.
Paul Smee, director general of the CML, pointed out that it was not a surprise that lending eased back following the significant rises in activity in March as borrowers looked to beat the second home property stamp duty deadline. ‘We expect the market to take several months to return to its previous levels after the lending surge,’ he added.
According to Andy Knee, chief executive of LMS, remortgaging is driving growth in the home loan market. He pointed out that not only were the number of remortgage loans up by almost a third from the year before but it was the greatest number of people remortgaging since July 2009.
‘It’s great to see home owners taking advantage of the favourable environment for remortgaging. Record low interest rates have improved affordability and home owners are sitting on huge amounts of housing equity that they may have been wary of capitalising on previously. The Government is also consulting on seven day switching for faster transactions, the ease of which could drive the incentive for borrowers to revisit their mortgage faster,’ he pointed out.
He also pointed out that with prices continuing to rise first time buyers still remain disadvantaged. ‘There are signs of encouragement in the first time buyer market, such as a greater range of high loan-to-value products, but we’ll have to wait patiently for the year to unfold to be able to gauge the impact of this on the market,’ he added.
However, Patrick Bamford, business development director for AmTrust Mortgage Insurance, believes that continued low interest rates and a plethora of products mean mortgages are getting cheaper for first time buyers who are spending less of their income servicing their debt.
He explained that there was further good news for first time buyers as the number able to enter the property market rose by 7% year on year to 25,100. The average loan to value (LTV) for first time buyers, however, has increased slightly to 85% and this leaves many hopeful buyers having to save huge deposits, often the greatest hurdle to buying a home.
He also believes that lending at 95% LTV falling from 3% in the fourth quarter of 2015 to 2.5% in the first quarter of 2016 is a worrying trend for any but the wealthiest or those who can rely on parental support when raising the deposit for their first home.
‘Government intervention in the form of Help to Buy 2 proved instrumental in reinvigorating lending for those with a 5% deposit and proved that mortgage insurance is an effective tool in supporting first time buyers while mitigating risk to the lenders,’ he said.
‘When this ends later this year, our concern is that lending to first time buyers with small deposits will fall back into steep decline. The lending industry will therefore need to find a solution, such as private mortgage insurance, to sustain high LTV lending and ensure those with smaller deposits are not disenfranchised from entering the property market,’ he concluded.
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