House purchase approval figures improved last month after three consecutive months of slowdown as the house purchase market stabilises, according to the latest Mortgage Monitor from e.surv.
Monthly house purchase approvals grew in October, rising to 61,952. This represents an increase of 1.1% from September’s 61,267, the first monthly growth since the end of the second quarter. The upturn comes after three consecutive months of slowdown in July (-1.2%), August (-2.9%), and September (-4.4%).
However, there were 9.2% fewer house purchase approvals compared to the same month last year, when there were 68,252 approvals. This is the largest annual decrease since August 2012, and also makes October 2014 the second consecutive month in which house purchase approvals have fallen on an annual basis.
Richard Sexton (pictured), director of e.surv chartered surveyors, said: “The purchase mortgage market is self-correcting to operate at a more constant, stable pace – the very reason that MMR was introduced. Now that regulatory changes have tightened up the nuts and bolts of the lending process, we can look forward to careful constancy rather than the unhealthy acceleration we saw before the recession.
“Far from the screech of brakes, this is the sound of a well-oiled engine humming in a sustainable gear.”
E.surv said higher LTV lending declined 14.9% between September and October. There were 9,231 house purchase approvals to borrowers with a deposit of 15% or less of the total value of their property in October, down from 10,844 in September.
These higher LTV borrowers – typically first-time buyers – constituted just 14.9% of all house purchase borrowers in October, the lowest percentage in six months. Their share of the market had been stable from June to September, fluctuating very slightly between 17.4% and 17.8%. Annually, only 1.7% more higher LTV loans were approved last month than in October 2013, far fewer than September’s annual increase of 34.6%.
However, mortgage approvals on properties worth £125,000 or less remained fairly static. Properties in this price bracket account for 19% of the market as of October 2014, a small change on a monthly basis from 21% in September 2014 and on an annual basis from 20% in October 2013. The average LTV for these homes was 70% in October 2014, down slightly from 71.1% the month before, but higher than 68.7% in October 2013.
“Slow wage growth and low interest rates have made it difficult for borrowers to save for larger deposits,” said Sexton. “Help-to-Buy had been counteracting this by making it easier to acquire higher-LTV loans. However, the introduction of further regulation in the form of Loan-to-Income caps in early October has taken some of the wind out of first-time-buyers’ sails.
“The increasingly rigorous testing may have seemed daunting to prospective homeowners – a negative image has likely had a dampening effect on the real positive influence of MMR and Help-to-Buy. In addition, those who have seen regulation for the vital tool it is have started to buy up the existing stock of starter homes.
“It is not enough merely to tinker with the financial conditions of first-time buyers and those that lend to them with schemes like MMR or Help-to-Buy – especially if these necessary checks and balances are misconstrued by the very people they are meant assist. In some areas of the country we’re approaching a situation where if more houses aren’t built, more houses can’t be sold.”
