Mortgage lending decline in October was ‘expected’

There were 46,000 loans for house purchase (worth £6.7 billion), down 4% in number and 6% by value from September. The total was 16% lower (12% by value) than in October 2009, but lending numbers in the final quarter of 2009 were boosted as buyers brought forward transactions to take advantage of the stamp duty holiday.

Remortgaging showed a similar pattern, with 26,000 loans (worth £3.1 billion) advanced in October, down 9% (11% by value) from September, and 21% lower (24% by value) than in October 2009.

There were 17,000 loans to first-time buyers in October, worth £2 billion, a decrease of 5% by volume and 9% by value from September, and 19% by volume and 17% by value on a year ago. Home movers were similarly affected, with the 29,400 loans (worth £4.7 billion) advanced, representing a 3% drop by volume (6% by value) from September, and a 14% reduction by volume (10% by value), compared to October 2009.

Loan-to-value ratios appear to have eased in October. On average, first-time buyers borrowed 80% of the property’s value in October, up from 76% in September. But the average income multiple to a first-time buyer declined to 3.19 from 3.26 in September. This is partly explained by the recent fall in house prices leading to lower loan amounts being advanced for house purchase. The same applied to movers. The average loan-to-value for movers was 69%, up from 67% in September, while the average income multiple was 2.84, down from 2.89 in September.

The take-up of repayment mortgages in October was the highest in more than five years for both home-buyers and those remortgaging. 93% of first-time buyers took out a repayment mortgage in October, the highest proportion since records began in 1974, showing a clear shift away from a pre-2007 norm of around 30% of first-time buyers opting for interest-only mortgages. This shift shows lenders have been adjusting their loan criteria in anticipation of possible regulatory changes, and a recognition that repayment mortgages may be in the best interests of less experienced borrowers such as first-time buyers.

Michael Coogan, director general of the CML, commented:

“With 2009 lending levels artificially inflated by the end of the stamp duty holiday, we expected to see a decline in lending year-on-year, so today’s figures are not surprising. Consumer confidence has also been affected by October’s spending review, despite the relative affordability of monthly mortgage payments, and so a stable but small lending market will continue for some time to come."

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