Loans for house purchase and remortgaging increase in May

There were 41,500 loans worth £5.9 billion advanced for house purchase in May, up from 40,800 (£5.9 billion in value) in April. Despite the monthly increase in house purchase activity, it is still below the level seen in May last year (43,800 advances worth £6.3 billion).

Remortgage lending picked up slightly in May. 29,000 remortgage loans were advanced, worth £3.6 billion, compared to 24,700, worth £3 billion, in April. Compared to May last year, remortgage lending has increased by 9% in value, but remains below the recent peak in March (£4.1 billion).

The majority of borrowers continued to opt for fixed rate mortgages in May (62%). It is likely that borrowers prefer the certainty of mortgage payments in a period when future interest rate movements are uncertain. Only 22% of all borrowers chose tracker mortgages in May. This represents a significant change from May a year ago when fixed rates were less popular at 46% and tracker mortgages more popular at 36%.

Lending to first-time buyers was virtually unchanged in May. 15,900 first-time buyer loans were advanced compared to 15,800 in April. The value of these loans remained unchanged in May at £1.9 billion. Compared to May last year, first-time buyer activity has fallen by 2.5% in volume (from 16,300) and 5% in value (from £2 billion).

First-time buyers borrowed on average 80% of their property’s value in May for the second month in a row. This is still well below the 90% that first-time buyers typically borrowed before 2008, but has eased a little from the 75% experienced throughout 2009 and early 2010.

In May this year, only 3% of first-time buyers took out an interest-only mortgage. Before 2008, it was typical for around 30% of loans to first-time buyers to be on an interest-only basis.

The number of mortgages advanced to home movers edged up in May to 25,600 advances from 25,000 in April, while the value of loans advanced stayed the same (£4 billion). This is an increase of 2.4% by volume compared to April. There were larger year-on-year falls in lending to this group than in the first-time buyer sector, down by 7% in volume compared to May last year.

Home movers have typically borrowed just below 70% of their home’s purchase price since the middle of 2009 and this continued in May.

Michael Coogan, CML director general said:

"Over the coming months seasonal factors are likely to push up lending for house purchase. There is no evidence of any drastic changes on the horizon or any significant shifts in direction for the mortgage market. These stable conditions are expected to continue for the rest of the year.

"Funding market conditions appear a little more positive, for example, recent securitisation deals suggest confidence has returned as investors regain their appetite to invest in bonds backed by mortgage assets. Overall this is a positive influence on mortgage market conditions."

Nicholas Leeming, business development director of Zoopla.co.uk, said:

“Lending levels are slowly heading in the right direction but the key problem is the lack of change in the number of loans for first-time buyers. Lenders still have a tight grip on the market and this is preventing these buyers from instilling the energy the property sector so desperately needs. Lenders should view the return of the securitisation market as a signal to blow the dust off their ledgers and lend more earnestly because without a positive move from the lending community the property market will remain in the doldrums.” 

David Whittaker, managing director of Mortgages For Business, said:

“The lack of movement in the number of first-time buyer loans has put mounting pressure on an already over-loaded private rental sector. Tenants are scrapping for properties and rents are climbing as a result. This has provided more opportunities for professional landlords and property investors to capitalise on stagnating property prices, rising rents and increasing numbers of BTL mortgage products. Now is a prime time for investors to be considering their options and with the end of summer rental rush not too far away we expect investors keen to boost their portfolios to do so soon.”  

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