Borrowers with smaller deposits accounted for the largest portion of house purchase lending in five months in February, according to the latest Mortgage Monitor from e.surv.
Higher LTV house purchase approvals (loans to borrowers with a deposit of up to 15% of the total value of their property) made up 16.9% of house purchase approvals in February, a significant proportional increase from 15.3% in January and just 13.9% in December.
Higher LTV approvals formed the largest proportion of total house purchase lending since September 2014.
As a result, the absolute number of higher LTV approvals has bounced-back. There were 10,298 higher LTV loans in February, 10.7% more than 9,300 in January. February also marks the third consecutive month of growth in higher LTV approvals.
The rise was partly driven by rising property prices. The average purchase price for first-time buyer homes climbed to a new record of £160,304 in January, 12% higher than January 2014, according to the latest First Time Buyer Tracker from Your Move and Reeds Rains.
Richard Sexton, director of e.surv chartered surveyors, said: “Lending to lower-deposit borrowers is back on track, which is encouraging as the mortgage market moves into spring. Higher LTV borrowers took a nosedive in October as a proportion of the market, after the introduction of loan-to-income caps became a challenge for first-time buyers. But these buyers are evidently returning to the market to take advantage of low mortgage rates and cheaper stamp duty charges. And after the tricky bedding in phase that accompanied new mortgage legislation, first-time buyers are now once again accessing a market restructured for long-term viability.
“Even with this revival, we’re safely below the high-tide mark of higher LTV lending seen back in 2007 – when smaller deposit borrowers made up around a third of total lending. The Mortgage Market Review has ensured that all future borrowers are subject to comprehensive affordability checks and given plenty of advice, and so the danger of them defaulting has been reduced. Many prospective borrowers are unable to save up a massive sum for a deposit – but they often still have strong monthly incomes and make attractive customers for lenders. Low deposits do not necessarily need to mean high risk.”
Across the whole market, total house purchase approvals grew for the third consecutive month, as lending stabilised.
House purchase approvals grew 0.2% month-on-month in February, with 60,935 approvals, compared to 60,786 in January and 60,349 in December. This improvement comes after a series of drops stretching from July to November 2014, suggesting the market is settling back into sustainable growth.
“The mortgage market is beginning to warm up, with three months of improvements under its belt. A gently buoyant three months have carried house purchase approvals away from the slump of late 2014,” said Sexton.
“The purchase mortgage market is now working with newly introduced legislation to produce growth at a safe and sustainable pace. It’s the story of the tortoise and the hare – the reconfigured market has a wealth of checks and balances to ensure that growth occurs in a measured fashion rather than a dizzy burst. Growth is slower than a year ago, but it is more sustainable.”
The proportion of higher LTV lending has risen from January to February in every UK region apart from Yorkshire, where it fell by two percentage points, and the South East, where it dropped by one percentage point.
The North West saw the greatest proportion, with 27% of all February house purchase approvals going to borrowers with higher LTV loans. Yorkshire dropped from first to second position, with 26% of loans going to higher LTV borrowers. London trailed far behind, with just 8% of house purchase loans being higher LTV – less than half the UK average.
Sexton added: “People with higher LTV loans are typically first-time buyers, looking to make the crucial leap onto that first rung of the property ladder.
“We can see the effects of Help to Buy taking strongest root in the North. It’s a vital scheme to ensure people are able to become homeowners for the first time while savers struggle to put a deposit together against a backdrop of low interest rates. It’s clear that these effects aren’t having quite the same impact in the South. The simplest and most effective answer is to build more houses. The shortage of homes is a problem all over the UK but, as the figures show, especially acute in London and the South East.”