April sees anticipated decline in mortgage lending

The largest fall was to first-time buyers, with lending at around half the levels of the previous month.

The drop off in activity for first-time buyers was seen mainly among properties that would have qualified for the exemption in March so were subject to stamp duty in April. Purchases of properties valued between £125,000 and £250,000 fell by 70% in April compared to March. In contrast those valued at £125,000 or below, so still exempt from stamp duty, fell by a more modest 11%, while first-time buyer purchases for properties over £250,000, so not eligible for the exemption in any case, fell by only 5%. 

In total, 12,600 loans were advanced to first-time buyers, down by 48% compared to March and 12% compared to April 2011. By value, first-time buyers borrowed £1.5 billion, down 52% compared to March and 12% compared to April last year.

The change in the mix of properties bought had knock-on effects on first-time buyer loan characteristics. The average loan amount fell from £117,000 in March to £98,000 in April and first-time buyers typically borrowed 3.12 times their income, down from 3.34 in March. These changes are almost wholly because of the trend in April towards cheaper properties rather than a real improvement in affordability for first-time buyers.

Lending to home movers also fell. 23,400 loans worth £3.8 billion were taken out in April, down by 15% (14% by value) compared to March but an increase of 3% (by volume and value) compared to April 2011.

Total house purchase lending in April fell from 51,600 loans, worth £7.4 billion, in March to 36,000, worth £5.3 billion, in April. Remortgaging also saw a fall, with £3.1 billion advanced, down 14% compared with March and the lowest monthly total since December 2010.

Nearly all first-time buyers currently take out repayment mortgages, 98% in April, unchanged from March. The proportion of home movers and those remortgaging doing so also continues to increase with around 85% of home movers and 82% of remortgagors taking out full capital repayment mortgages. Reflecting the fact that repayment mortgages are now taken out by the vast majority, CML monthly data will now show the total proportion of income spent on capital and interest payments by those choosing this method, as well as the longstanding affordability measure of the proportion of income spent on interest alone. In April, first-time buyers spent 19.1% of their income on both payments (compared with 12.5% on interest alone), down from 19.8% in March (13.1% on interest alone).

Paul Smee, director general of CML, commented:

"April’s figures show the expected effect of the end of the stamp duty concession on UK mortgage lending. Given the economic uncertainty, any significant pick up in lending in the coming months seems unlikely.

"However, our recent research highlights that over 80% of people still aspire eventually to own their own homes, and long term demand clearly still exists."

David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains said:

“The CML today has provided the clearest evidence yet that the government’s failure to extend the stamp duty holiday is at odds with the efforts of mortgage lenders to boost activity in the market. First-time buyer activity is a critical starting point for the market as it allows those who wish to make purchases of higher value properties to move up the property chain. By stalling this part of the market, the return of stamp duty has brought an unnecessary and unwelcome distortion to the market”.

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