With interest rates expected to remain low for some time yet, there is little incentive for borrowers to move away from low reversion rates at the end of tie-in periods. And continuing tight credit conditions mean that some borrowers are unable to access new refinancing deals. So there is little prospect of a significant rise in remortgaging in the coming months.
There were 51,600 house purchase loans (worth £7.7 billion) advanced in August, a fall of 8% (by volume and value) compared to July. While this is in line with the usual summer lull in market activity, a rise of 3% (by volume) and 12% (by value) from August 2009 shows that 2010 house purchase lending is still proving slightly more robust than the low levels in the equivalent months of 2009.
The 18,300 loans (worth £2.3 billion) advanced to first-time buyers in August represented a decline of 5% (by volume) and 4% (by value) from July. First-time buyer loans were also down 3% by number, but up 5% by value, compared with August last year. Deposit criteria for first-time buyers have varied a little on a monthly basis throughout the year to date, and appear to have eased again somewhat in August. First-time buyers in August put down on average a 21% deposit, compared to 24% in July.
Home movers suffered more than first-time buyers from the summer lull in August with the 33,200 loans (worth £5.4 billion) advanced down 10% (by volume and value) on July and average deposits up from 33% in July to 34%. This saw movers in August borrowing at the lowest loan-to-value ratio for six years. However, in terms of lending levels there was some improvement on a year ago, with home-mover loans 7% up (by volume) and 13% up (by value) from August 2009.
Fixed-rate products are enjoying a slow shift back to popularity with 52% of new borrowers opting for one in August, up from 51% in July. This is still far below 2009, when in July the proportion of new fixed-rate mortgages hit 80% but started to wane in popularity straight after.
CML director general Michael Coogan said:
"August is a traditionally slow month for mortgage lending and it was no different this year. We expect a quiet market to continue for the foreseeable future. While we do not know what the impact of the comprehensive spending review will be on our sector, it will clearly contain austerity measures that will likely further dampen consumers’ appetite to borrow.
"We would expect lending to slow more significantly, year on year, as we head towards the end of the year, and it is unlikely that the uncertain environment will encourage a tick up of mortgage activity in 2011. With some uncertainty surrounding future house price trends, we would expect a muted market in the next few years. The problem of excess capital, that led to record lending and borrowing in 2007, has self corrected and will not return."
Jonathan Moore, director of easyroommate.co.uk said:
“The drop in the number of house purchase loans is more than just a seasonal drop-off. The lending market remains in ill-health, and first-time buyers are bearing the brunt of lenders’ caution. Lending to first-timers has dropped both year on year and month on month as buyers struggle to save for the colossal sums required for a deposit. And with public sector spending cuts looming, unemployment will take its toll on many buyers’ finances, stunting any growth in lending for the remainder of 2010.
"Although the average LTV has increased slightly for first-timers in the last month, after the last year of house price rises, first-timers need to stump up an average deposit of £28,800. Unless more affordable products are made available to first-timers, we are going to see the freeze in the first-time buyer market persist, and the average age of a first-timer continue its upwards climb. If state-backed banks and building societies considered potential room rental income when deciding how much to lend, first-timers could access an extra £11,000, helping many get a leg up onto the property ladder.”
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