Five-year high in first-time buyer numbers

The number of first-time buyers reached its largest yearly total in five years, according to latest CML figures.

A total of 216,200 first-time buyers became homeowners in 2012, the first time the annual total has exceeded 200,000 since 2007, a year-on-year rise of 12% on 2011 when 193,000 loans were advanced.

On a monthly basis, lending to first-time buyers, home movers and remortgage lending all eased in December, reflecting the usual seasonal factors.

A total of 19,100 loans were advanced to first-time buyers in December, a 12% drop compared to November but up by 3% on the same period in 2011. By value, loans to first-time buyers totalled £2.4 million, a 11% fall on the previous month.

The fourth quarter total showed that lending to first-time buyers continued to strengthen. There were 60,500 loans advanced in the last quarter of 2012, worth £7.6 billion, an 8% increase from the third quarter and up by 14% compared to the fourth quarter of 2011.

In the fourth quarter, first-time buyers also accounted for 42% of all house purchase lending, above the 38% typically seen.

There was also a modest but discernible increase in lending at higher loan-to-value ratios in the last quarter. While the average loan-to-value ratio stayed at 80%, where it has been for two years, this masks some encouraging movement in higher loan-to-value lending. For example, 1 in 40 first-time buyers took out a 95% mortgage compared with less than 1 in 100 a year earlier. And around 1 in 5 first-time buyers borrowed 90% or more.

Table 1: First-time buyers, lending and affordability

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
December 2012	19,100	2,400	80%	3.28	13.2%	19.9%
Change from November 2012	-11.6%	-11.1%	80%	3.24	13.3%	20.0%
Change from December 2011	2.7%	4.3%	80%	3.29	12.2%	19.4%

Table 2: First-time buyers, lending and affordability (year-on-year)

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
2012	216,200	27,300	80%	3.26	13.2%	19.8%
Change from 2011	12.0%	15.7%	80%	3.21	12.7%	19.6%

Home movers

As with first-time buyer lending, lending to home movers dipped in December. There were 25,900 loans advanced to home movers in December, worth £4.3 billion, a 15% fall compared to the previous month and a 9% decrease on December 2011. By value, lending to home movers fell by 12% compared to November.

In the fourth quarter, home mover lending fell, suggesting that the drop in December may not have been entirely due to seasonal factors. In the fourth quarter, a total of 84,900 loans were advanced to home movers, down by 3% on the previous quarter.

Lending to home movers increased year-on-year, however, rising by 3% compared to 2011.

Table 3: Home movers, lending and affordability

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
December 2012	25,900	4,300	70%	2.90	9.9%	19.0%
Change from November 2012	-14.5%	-12.2%	70%	2.87	9.9%	19.1%
Change from December 2011	-9.1%	-8.5%	70%	2.95	9.5%	18.9%

Table 4: Home movers, lending and affordability (year-on-year)

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
2012	323,900	53,600	70%	2.90	10.1%	19.2%
Change from 2011	2.7%	3.7%	70%	2.89	9.6%	19%

Reflecting the fall in lending to first-time buyers and home movers overall, house purchase activity dipped in December. A total of 45,000 loans, worth £6.7 billion, were advanced in the last month of the year, down by 13% compared to November and by 4% on December 2011.

In the fourth quarter, meanwhile, the number of loans advanced increased compared to both the third quarter and the same period in 2011. There were 145,400 loans advanced, up from 143,500 in the third quarter.

Despite the fall in house purchase lending at the very end of the year, strong month-on-month increases throughout much of the year led to a 6% (7% by value) increase in house purchase lending in 2012 compared to 2011. A total of 540,200 loans were advanced worth £80.9 billion, the largest annual total since 2007.

Table 5: Loans for house purchase and remortgage

	Number of house purchase loans	Value of house purchase loans, £m	Number of remortgage loans	Value of remortgage loans, £m
December 2012	45,000	6,700	21,400	2,800
Change from November 2012	-13.3%	-11.8%	-18.3%	-17.6%
Change from December 2011	-4.5%	-4.3%	-23.0%	-22.2%

Table 6: Loans for house purchase and remortgage (year-on-year)

	Number of house purchase loans	Value of house purchase loans, £m	Number of remortgage loans	Value of remortgage loans, £m
2012	540,200	80,900	313,500	40,800
Change from 2011	6.2%	7.4%	-16.2%	-12.6%

Following subdued remortgage lending throughout 2012, there was a 13% fall in 2012 overall. This pattern continued in December when the value of remortgage lending (£2.8 billion) was 18% lower than the previous month and down by -22% compared to the same period in 2011.

More positively, there was a 5% increase in the fourth quarter total when compared to the previous quarter.

The improvement in funding conditions, and in particular the Funding for Lending scheme (FLS) have stemmed the upwards pressure on interest rates seen through the first half of the year.

The CML said that is particularly true for fixed rate loans, the rates on which peaked at 4.25% on average in August (coincidentally when FLS was launched) and have subsequently fallen to 3.84%. Fixed rate loans became increasingly popular throughout 2012 – overall 69% of mortgages in 2012 were advanced on a fixed rate, up from 62% in 2011 and the largest proportion since 2007. This preference for fixed monthly payments was prevalent among first-time buyers, 83% of whom opted for a fixed rate loan in 2012.

CML director general Paul Smee said: “Despite the seasonal dip in lending that we normally see in December, the underlying trend for year-on-year increases in house purchase activity continued in 2012.

“First-time buyers, in particular, have benefitted from the effects of better funding conditions and the Funding for Lending scheme, with the number of new people moving into home-ownership in 2012 reaching the highest level for five years. This, along with other factors, confirms that lenders really are open for business.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “It is not too early to call the end of the mortgage impasse. The Funding for Lending scheme is making more money available at cheaper rates to lenders, which is being passed onto borrowers, resulting in some of the cheapest mortgage rates ever seen.

“It really has become a case of ‘how low can they go?’ as the mortgage price war continues to rage, even though Base Rate remains static. Two-year fixed rates are now available from 1.89%, while five-year fixes are pegged as low as 2.69%. Borrowers need to watch out for some hefty fees on the cheapest rates, while these are only available to those with big deposits.

“However, the cost of borrowing has dropped across the market, with rates on higher loan-to-values also falling. This is being reflected in the growing number of first-time buyers, which is significant for the health of the housing market as they really are its lifeblood. One in five first-time buyers is borrowing at least 90% LTV and with these rates falling along with lower LTV rates, this will fuel further growth.

“Most importantly for a market that rests on confidence, there is renewed optimism. Let’s not get ahead of ourselves: the mortgage market is still constrained when you compare it with what it was at the height of the housing boom but it is finally showing encouraging signs of improvement.”

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