Regulatory changes caused the lending recovery to stall in the second half of 2014, with nearly 34,000 fewer home purchase mortgage approvals between July and December, according to the latest Mortgage Monitor from e.surv.
Though the first half of 2014 showed a marginal increase on the post-recession highs of H2 2013, the purchase mortgage market hasn’t remained stable at that level. In total, there were 370,184 house purchase approvals in H2, 2014 – a fall of 8.1% from the H1 2013 when there were 402,808 house purchase approvals, and an even larger decrease of 8.4% from 404,058 in H1 2014.
On a monthly basis, total house purchase lending for December stood at 60,217, a 16.6% year-on-year fall from 71,504 in December 2013. In January 2014 the Bank of England reformed Funding for Lending to exclude home purchase mortgages – which e.surv this accounts for this steep annual decline.
Month-on-month, December saw a 2.0% increase from 59,029 house purchase approvals in November. This continues a trend of month to month stabilisation seen since September, when there was a month-on-month change of -4.4%. The rate of decline in approvals improved in October (-2.9%) and November (-0.8%), before showing this December increase, the first for five months.
Richard Sexton, director of e.surv chartered surveyors, said: “2014 was a tale of two halves – with strong lending in the first half and a more subdued second. The important thing to remember is that seasonal trends are far from the only ones that affect the mortgage market. The market doesn’t always split itself easily into quarters and halves, so a wide-angle view is required to identify the prevailing trends.
“While the second half of 2014 is clearly not operating at the peak levels seen in 2013, it seems that the home purchase market has found a resting point well above pre-recession levels, with mortgage volumes dropping at a slower rate towards this monthly pickup in December.
“In the longer term, we can see that purchase mortgage lending was heading for a peak in January 2014. The reasons for the subsequent drop are clear in light of changes to Funding for Lending. In January, the scheme ceased to apply to home purchase mortgages. The changes were implemented because house purchase approvals in the last half of 2013 provoked fears of an overheated market. With this in mind, the year-on-year decrease combined with improving month-on-month figures seems like an ideal outcome.”
Lending to borrowers with deposits worth 15% or less of their property’s value showed a strong 5% month-on-month increase in December. There were 8,370 loan approvals made for higher LTV borrowers (typically first-time buyers), which represents a 0.9% year-on-year improvement compared to 8,294 in December 2013.
As a proportion of total home purchase approvals, the number of borrowers in the higher LTV bracket has risen slightly month-on-month to 13.59% from November (13.5%). Despite this, they still have not returned to the highs of Q3 2014 when they occupied 17.6% of the market on average.
The most recent Your Move and Reeds Rains First Time Buyer Tracker found that the average first-time buyer’s deposit in November had fallen 4% year-on-year to just £25,991 from £27,173 in November 2013. This drove a November sales surge in sales to first-time buyers. An increase in higher LTV lending in December suggests that this trend may have continued.
At the other end of the market, borrowers with deposits worth 40% or more of their property’s value fell back in December. Just 17,824 such loans were made, a 3.5% decrease from November (18,476) and a 16.6% reduction from 21,381 in December 2013.
Sexton added: “First-time buyers are not the powerhouse they were earlier this year. Nevertheless, the reform of the Stamp Duty Land Tax in December is reflected in this monthly uptick for lower-LTV borrowers as inexpensive became cheaper.
“Meanwhile, at higher LTVs, first-time buyers are still receiving the help they need from Help-to-Buy in a way that doesn’t overheat the market. Amid all the policy implementations we’ve experienced in the past few years – both preventative and stimulating – annual figures need to be looked at with proper perspective.”
