Lending to high LTV borrowers reached a post credit crunch high in June, according to the latest Mortgage Monitor from e.surv.
There were 10,898 house purchase approvals to borrowers with a deposit of 15% or less of the total value of their property in June 2014, 12% more than 9,750 in May and 52% more than 7,166 twelve months before. It was the highest number of high LTV loans since April 2008, when there were 12,572.
Almost a fifth of house purchase lending was to high LTV borrowers in June, compared to one in nine home loans a year ago. The average LTV climbed to 63.6% as a result, up from 60.6% in June 2013 and the highest level since August 2007.
But total high LTV lending still fell far short of the pre-recession era. High LTV lending peaked in February 2007, when there were 41,745 loans to borrowers with a deposit of 15% or under – four times the volume witnessed in June 2014. The proportion of high LTV lending is also far smaller than in February 2007, when more than a third of loans were to high LTV borrowers.
But the high LTV recovery could be about to halt. The Bank of England’s Financial Policy Committee have introduced loan-to-income (LTI) caps, limiting the number of loans issued worth more than 4.5 times a borrower’s income to 15% of new mortgages.
Richard Sexton, director of e.surv chartered surveyors, said: “A glut of high LTV deals has tempted borrowers back to the market, supporting a flood of first-time buyers over the last year. Banks have increased their arrays of high LTV options, reducing prices and helping keep the dream of homeownership alive for the bottom of the market. It was needed. The base rate has been stuck at 0.5% for five years. Wages have shown sluggish growth. And the cost of getting onto the housing ladder – and saving for a deposit – has been building. More high LTV lending prevented a flat lining of first-timers, at a time when all the odds seemed stacked against them.
“The tides may be about to turn for borrowers. High LTV lending may start to tail off in the wake of new regulations. Saving for a deposit is not going to be made any easier by the introduction of loan-to-income caps.
“We should bear in mind that while high LTV lending is recovering, we are still nowhere near pre-crash levels. As it is, high LTV lending is the only thread linking many prospective buyers with the hope of owning their own home. Assessing each loan application thoroughly and advising buyers on the consequence of borrowing can only be a good thing. But simplistic LTI caps are a step too far, and may tip hosts of credit worthy borrowers out of the market.”
Total home lending fell for a sixth consecutive month in June. There were 61,586 house purchase approvals in June, slightly lower than 61,707 in May 2014. The number of house purchase approvals remains 4% higher than 59,223 in June last year.
First-time buyers are increasingly looking to higher priced properties and larger LTV mortgages as the stock of available cheap properties recedes. There were 12,313 loans on properties up to the value of £125,000 – typical first-time buyer stock – in June 2014, 13% lower than in June 2013.
This is having the most acute effect in the capital. The average purchase price in the London was £267,572 in May according to the latest LSL First Time Buyer Tracker, compared to the UK average of £146,887. The average LTI ratio of first-time buyers in London was also higher, at 3.83 in May (based on an average income of £52,610 and an average mortgage of £201,674), compared to just 3.39 across the UK.
Sexton added: “Capping high loan-to-income lending in London may not have as much impact as desired. The London market is dominated by foreign investors and buy-to-let landlords – not just home-movers. Capping levels of high LTI lending will cut down the number of borrowers – particularly first-timers, but it won’t sate the appetite for property, which is the main driving force behind house price rises.
“There is still a considerable amount to do in the housing market. Until we fix the lack of supply, prices will continue on an upward climb. Action must be taken soon, or a whole generation of house buyers could lose out. We need to update planning regulation and upscale development, to cater for the accommodation needs of our country.”
