The latest National Mortgage Index from Mortgage Advice Bureau has revealed that average house purchase deposits reached a 14-month high in December 2014.
While tighter affordability criteria have fuelled the rise, MAB believes the December figures also suggest the government’s recent stamp duty reform has helped some buyers by freeing up extra funds for a deposit, allowing them to take on a greater share of the cost of buying a home.
The typical mortgage applicant’s deposit in December was worth 30.7% of their house purchase price. This is the highest level of deposit recorded since October 2013 when the average was 30.9%.
The same month (October 2013) saw the Help to Buy mortgage guarantee launch, encouraging more lending to people – typically first time buyers – with deposits of just 5%. The average deposit for purchase mortgage applications across the market subsequently dipped as low as 28.2% in March 2014 as more lenders joined the scheme and others launched competing high loan to value (LTV) deals.
Since then, stricter loan criteria under the Mortgage Market Review (MMR) rules have reversed the trend, to such an extent that there have only been two months (September and October 2013) in the last two years where homebuyers contributed more funds towards a house purchase than December’s average 30.7% deposit.
However, the stamp duty changes have handed some advantage back to buyers by providing them with more available funds. December’s average purchase price of £231,487 would only qualify for a £185.13 stamp duty reduction under the new system. But anyone buying a house worth £250,001 paid almost £5,000 (£4,999.98) less since 4 December compared with the old ‘slab’ system.
Average deposits in December were £2,249 (3%) higher than in November at £71,078. This monthly average and rate of increase was the highest seen since May 2014: the first full month where the market operated under the MMR rules.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “December’s stamp duty announcement was an early Christmas present for many aspiring buyers. Having extra funds to put towards a deposit can not only help to limit borrowing commitments and give people more bargaining power. It can also allow access to better mortgage deals at lower LTVs, either at the point of purchase or when it comes to remortgaging at a later date.
“We are yet to see the extent that stamp duty savings are mirrored in higher asking prices, but after a period where credit conditions were squeezed by the new mortgage rules, this fairer tax regime has certainly fuelled buyer optimism about their purchase prospects for 2015.”
Comparing the average cost of house purchase applications across the country in December, the South East is the region where buyers stood to benefit most from the changes in stamp duty. Under the new system, the typical buyers in the region will save £3,870.50 in stamp duty: 4% of the cost of their deposit.
While London’s typical buyer stood to make a greater saving (£4,593.10) under the new stamp duty system, higher property prices in this region mean this saving is less (just 2%) as a proportion of their deposit.
The average stamp duty saving across regions in December was equivalent to £1,376.11, or £1,054.41 excluding London. In all but two regions (the West Midlands and Wales), the typical buyer stood to save more than £500 under the new system.
The stamp duty changes also helped to keep mortgage applications buoyant in December, despite the traditional seasonal slowdown. Total applications fell by 28% from November, but were still up by more than a quarter (26%) year-on-year.
Murphy said: “The mortgage market has come through a potentially turbulent year intact with good growth prospects for 2015. However, the shift in lending criteria has had a noticeable effect on the shape of the market, particularly at the margins where affordability is most stretched.
“The changes mean the market can grow on a surer footing, and we now have a more sensible approach to stamp duty in place. However, there are still regional pressures and we mustn’t forget the vital support needed by less affluent buyers. Many can still reasonably afford to support a loan even if they have a smaller deposit, so it is encouraging to see a steady stream of new products appearing since the turn of the year.
“It’s likely that we’ll see a further adjustment in 2015 as lenders get more comfortable operating under the MMR and continue offering prudent loans to a broad range of consumers.”
