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Mortgage approvals fall as stamp duty ‘bounce’ fizzles out

e.surv, who analyse trends in mortgage valuations data, said first-time buyer numbers fell to their lowest level since July last year, indicating the first-timer market looks set to enter a trough following artificially strong months in December and January. Loans for purchases under £250,000, the threshold for the stamp duty exemption (and also typical first-timer property), fell by almost ten thousand from 43,459 in January to 33,944 in February.

There were further signs of underlying weakness afflicting the market in February. The average loan-to-value (LTV) fell for the third consecutive month to 61%.  Loans to borrowers with small deposits of under 15% fell to their lowest since July 2011. There were only 5,533 such loans in February, down from 7,870 in January, reflecting the decline in first time buyer numbers, but also the greater unwillingness from lenders to grant loans to lower income borrowers.

The sharp decline in first-time buyers dragged the total number of house purchase approvals down to their lowest level since May last year. It is the first time monthly approvals have fallen since September last year. Additionally, the pace of year-on-year growth declined dramatically from 29.6% in January to 1.6% in February – it’s slowest for seven months.

Richard Sexton, director of e.surv, said, “The stampede of first time buyers rushing to beat the stamp duty deadline bloated the January figures out of all recognition. They created an artificial spike in approvals, which shouldn’t be misconstrued as a sign the market is resuscitating in the long-term. At first glance the drop in approvals during February looks alarming, but it is a return to normality after an abnormally frantic winter.”

“Harder times for the market lurk in wait. Borrowers may find lenders notifying them of higher rates to cover their increased funding costs, as we have already seen with Halifax’s SVR mortgages, and with RBS on two of their product lines. Weak funding conditions mean lenders won’t be in a position to increase net lending – the truest indicator of a healthy market – beyond around £6bn this year, which is still painfully low compared the mid-2000s. Plenty of would-be buyers will be left out in the cold.”

“The first time buyer market looks set to enter a trough as it rebalances itself in the aftermath of the swollen activity of the last few months. Lending conditions aren’t any easier for new buyers, and they still have to cross a high threshold to secure a mortgage at an affordable rate.”

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