Growth in buy-to-let mortgage approvals has taken home lending to its highest peak in nine years, according to the latest Mortgage Monitor from e.surv.
January saw 85,432 house purchase approvals – up 20.6% month-on-month from 70,837 in December 2015. E.surv said this large monthly rise has been fuelled by an increase in buy-to-let investors, looking to beat upcoming legislative changes this April. It meant January saw the highest number of monthly house purchase approvals since 87,594 in October 2007 – nearly nine years ago.
On an annual basis, house purchase lending has risen 39.3% from 61,341 approved loans in January 2015. After a consistent run of annual increases, this yearly spike in house purchase lending signals the short-term impact of a surge in buy-to-let borrowing amid the wider strength of the lending market.
Richard Sexton, director of e.surv chartered surveyors, said: “Buy-to-let approvals contributed to the growth in January home lending. Concerns about the sector’s growth have sparked a wave of legislation but as stamp duty changes come into effect this April, there’s been a rush to get buy-to-let loans approved. Many have predicted a narrowing of the buy-to-let sector but actually what we’re seeing in lending quarters appears to be the opposite.
“This buy-to-let rise also hasn’t been at the expense of first-time buyers. The number of small-deposit loans granted has risen in January, and this is a great sign that lenders still have the appetite to give first-timers a chance. Rising wages and a delayed interest rate rise have also boosted first-timer’s prospects.
“For those investing in a second property it’s also a race to beat April’s legislation – adding an extra boost to overall house purchase approval levels.”
Small desposit lending (to buyers with a deposit worth 15% or less of their properties’ total value) increased in January to total 12,388 loan approvals in absolute terms, climbing from December’s total of 11,546. On an annual basis, this increase was even more significant, climbing substantially from the 9,385 small-deposit loans granted in January 2015.
Although January saw a numerical increase in the number of small-deposit loans granted this may not necessarily translate to increasing sales. The latest First Time Buyer Tracker from Your Move and Reeds Rains reveals that December 2015 saw 26,600 first-time buyer sales, down 4.7% monthly from 27,900 in November. This slight dip came amid a lower average deposit cost standing at £25,292 in December, down from £25,409 in November.
In addition, the proportion of total lending comprised by small-deposit approvals in January decreased to 14.5%. This fell from the 16.3% seen across both November and December 2015 – and formed the lowest proportion seen since 13.9% in December 2014.
Sexton said: “A buy-to-let surge has pushed down the proportion of small-deposit lending – but this figure conceals a more realistic and upbeat picture. In fact, January has been a positive month for small-deposit borrowers – the number of loans approved have reached their highest total for four months, since September 2015. And so the slowdown in small-deposit lending seen towards the end of 2015 hasn’t continued into 2016 so far.
“For first-time buyers, prospects are looking bright. Government initiatives introduced to help first-timers onto the property ladder appear to be working. According to the Treasury, large numbers of aspiring homeowners have taken advantage of the Help to Buy ISA, and this is an incredibly promising start.[1] Challenges do remain, supply issues are ongoing and the promise of starter homes may take longer to be realised, but for first-time buyers, lenders remain willing to support credit-worthy borrowers.”
Scotland was able to withstand widespread falls in the proportion of small-deposit lending throughout January – managing to record a six percentage point increase. As the only part of the UK operating a separate property tax system, it seems Scotland has avoided a buy-to-let surge – despite planning the same stamp duty surcharges as the rest of the UK and to the same timetable. Buy-to-let is also less significant in Scotland. The latest ONS figures reveal that, as of 2012, the private rented sector in Scotland comprised 15% of the housing market, while in England it equated to 19% – perhaps explaining why looming legislative changes to the buy-to-let sector have not had the same impact on the mix of lending in Scotland.
The Northwest overtook the Midlands as the region with the highest proportion of small-deposit lending – with a quarter (25%) of all house purchase approval lending to borrowers with small deposits. Yorkshire saw a 2% drop, from 26% of all lending made up of small-deposit loans falling to 24%. Although both regions saw marginal falls, the North continues to be a heartland for small-deposit borrowing – and therefore first-time buyers. The UK average also fell by 1% between December and January, with London continuing to see the lowest proportion of lending to small-deposit borrowers (6%).