The Q3 2014 Mortgage Search Tracker from Mortgage Advice Bureau (MAB) has found that consumer appetite for mortgage finance is increasingly coming from higher earners under the new MMR affordability rules.
Using data from over 250,000 monthly searches for mortgage products via price comparison and broker websites, the Tracker shows aspiring buyers searching for a new mortgage had an average combined income of £56,559 in Q3 2014.
This was up by 5% from £53,879 in Q2 2014 and up 21% year-on-year from £46,905 in Q3 2013: dwarfing the latest 0.8% annual wage growth recorded by the Office for National Statistics (ONS).
MAB believes the rise in incomes suggests the new focus on affordability assessments under the Mortgage Market Review (MMR) regime is attracting buyers with greater financial resources behind them.
The tracker also indicates that 25 to 29 year payment terms are becoming less popular among aspiring homebuyers. Just 48% searched for this length of deal in Q3 2014, down from 60% in Q3 2013.
In contrast, the proportion seeking terms of 30 to 39 years rose by five percentage points from 17% in Q3 2013 to 22% in Q3 2014, while at the other end of the scale, the proportion searching for 15 to 24 year terms also rose from 17% to 21%.
The fact that consumer preferences are becoming polarised is a sign of the conflicting pressures on buyers at different stages of their homeowning ‘careers’, MAB said.
With affordability stretched, younger buyers are likely to be interested in longer terms that allow them to spread their mortgage repayments. But with restrictions on lending beyond people’s normal retirement age, older borrowers are under pressure to fit their repayments into their working lives.
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “Affordability assessments have shone a spotlight on the detail of borrowers’ incomes and expenditure. As a result, it may have dampened some speculative interest from lower earners, and while there is still plenty of appetite from prospective purchasers, it is important that the industry continues to work hard to promote affordable options such as shared equity and shared ownership to maintain access to the property ladder.
“Overall, the transition to MMR has been far smoother than some had feared and it has certainly put the market on a steadier footing for the future. However, there is still important work to be done in terms of product offers, not just at the margins but also when it comes to the needs of older borrowers.”
Despite remortgage lending remaining subdued, the Tracker indicates homeowners are taking more interest in improve their existing deal. Less than a third (30%) of all mortgage searches in Q3 2013 were for remortgage products, but this has since risen to more than half (55%) in Q3 2014.
This revival of interest appears to have been bolstered by homeowners’ equity gains over the last year. The average property valuation for a consumer searching for a remortgage deal was £251,929 in Q3 2014, up by 2% in the last quarter from £247,452 and by 7% in the last year from £251,929.
As a result of these equity gains, consumers looked for smaller remortgage loans on average – down 2% from £132,161 in Q3 2013 to £129,743 – and a smaller loan to value (LTV) deal – potentially opening up access to better rates.
The Tracker also shows a coming-together of aspiring homebuyers and buy-to-let investors in terms of the price of properties they are targeting.
The average property valuation among aspiring buy-to-let borrowers fell by 6% from £225,234 in Q2 2014 to £212,362 in Q3 2014, while the average property valuation among aspiring homebuyers rose by 4% from £205,484 to £214,615.
It leaves a gap of just £2,253 between the properties targeted by would-be homeowners and buy-to-let borrowers in Q3 2014, down from £19,750 in Q2 2014. Aspiring buy-to-let borrowers also had an average loan requirement of £139,285 in Q3 2013 – 9% less than the £152,539 sought by aspiring purchase borrowers.
Murphy said: “A drop in the average property valuation among aspiring buy-to-let borrowers suggests that appetite for investing is focusing more on the lower end of the property market. Like homeowners, existing landlords will also have benefitted from recent equity gains and this may be helping them put up more of a deposit and scale back their borrowing needs.
“While the supply of housing is stretched, there will always be a sense of competition for property. The country needs a healthy rented sector to meet the full range of consumer needs, particularly among people who may be studying or need the flexibility to move for work, and positive actions to meet house building targets will give both homeowners and landlords more room to breathe.”
