It represents a 4% increase on October last year, and reverses four consecutive months of negative annual growth dating back to May this year.
The rise in lending has been driven by an increase in the mortgage credit availability to lenders, thanks primarily to the government’s Funding for Lending Scheme. Lenders have reported a 36% increase in mortgage credit for Q4 – the biggest quarterly increase since records began – which has encouraged banks’ to increase lending volumes and introduced more competition into the market. A higher proportion of house purchase loan applications were approved in October, with lenders predicting a 6% increase in the proportion of application approvals in Q4 compared to Q3.
Encouragingly, in line with the wider uplift, lending to borrowers with small deposits was 10% higher in October compared to Q3. There were 5,307 loans to borrowers with a deposit of less than 15%. This was the highest since April, and higher than the Q3 average of 4,826.
Richard Sexton, business development director of e.surv, explains: “If we discount January this year, when lending levels were artificially high thanks to the rush to beat the end of the stamp duty holiday, house purchase lending is as strong as it’s been since the end of 2009. It suggests the mortgage market is beginning to find it’s feet again after a torrid six months caused by tight funding conditions for lenders I would speculate that much of the improvement is down to the Funding for Lending Scheme. It didn’t have a significant impact in Q3, but now it is beginning to flood lenders’ balance sheets with cheaper funds and has encouraged them to increase their mortgage lending.”
The increase in lending was spread equally across different LTV bands, indicating lenders are still not yet confident enough to use the improvement in mortgage credit to focus their lending disproportionately on high LTV borrowers. Nine in ten house purchase loans in October went to borrowers with an LTV below 85%, a similar level to September and Q3.
Richard Sexton explains: “The improvement in October is encouraging, but it is by no means a sign the market will recover to its pre-financial crisis health. Lenders aren’t confident enough to really begin focusing their efforts on first time buyers, which is why lending to high LTV borrowers still forms a disproportionately large share of the mortgage market. Lenders are hamstrung by strict capital adequacy requirements and the prevailing tight funding conditions in the wholesale money markets. These are chronic problems that will continue to hamper their efforts to increase their lending in the long-term. FLS is an artificial stimulant which appears to be counteracting these drags and encouraging lending that may not otherwise have occurred – to this extent it should be applauded. But it isn’t a cure to the broader economic problems blighting the mortgage market. It will take a sustained spurt of economic growth to resuscitate the market back to rude health.”
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