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Glimmer of hope as house purchase lending rises

Remortgaging declined steeply with 35,000 remortgage loans, down from 44,000 in January – a 20% decline.

The CML said that it expected demand for remortgaging to remain muted as lenders’ standard variable rates were attractive compared to new mortgage pricing, and house price falls continued to erode equity levels which would exclude some borrowers from the best remortgaging deals available to those with large deposits.

Director general Michael Coogan said: "These figures represent February mortgage completions. Recent mortgage approvals figures published by the Bank of England show some signs of improvement at the beginning of the borrowing process, although activity is at a very low level historically.

"We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year.

"Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.

"We need further market measures to be introduced by the Government around the Budget to encourage a mortgage market where all types of lenders – banks, building societies and specialist lenders, and large and small businesses – are encouraged, and enabled, to commit more funds to the mortgage market if we are to enhance lending activity significantly."

There were 9400 loans to first-time buyers (a 7% monthly increase) but significantly fewer than the 17,400 in February 2008.

The tight lending criteria remained a barrier to most first-time buyers, the CML said.

First-time buyers typically had a deposit of 25% in February, a new record. Such amounts remain out of reach for all but the most affluent buyers, for example people returning to home ownership after a period of renting, divorcees, or those who get financial assistance from their family.

First-time buyers typically borrowed 2.95 times their income, down from three times in January.

The average first-time buyer loan was £95,000, down from £97,000 in January and £114,000 in February last year.

The CML said this decline reflected the change in house prices over the same period and the growth in the size of first-time buyer deposits.

Further, lower income multiples and mortgage rates have made affordability considerably easier for those able to get a mortgage.

Interest payments consumed 15.4% of the average first-time buyer’s income in February, down from 20.1% in February 2008 and the lowest proportion since June 2004.

There were 14,900 home mover loans in the month worth £2.1billion, up from 14,500 in January – an increase of 3%. The average home mover loan was £113,980, compared with £133,200 in February 2008. Interest payments typically consumed 11.8% of a home mover’s income, having dropped sharply from 17.4% in February 2008.

There was a shift away from tracker products towards fixed rates, with 56% of new loans at fixed-rate, up from 49% in January, while 31% were tracker products, down from 38% in January.

An increased proportion of homebuyers are not paying Stamp Duty as a result of falling house prices and the temporary raising of the nil-rate threshold.

In February 57% of all house purchase loans did not incur Stamp Duty, compared with 48% a year earlier.

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