The number of loans advanced to first-time buyers in October rose to levels similar to those seen over the summer, according to new data from the Council of Mortgage Lenders (CML).
Lending to home movers also increased, contributing to a rise in house purchase lending. Remortgage lending, while still relatively modest, reached its highest level in six months.
A total of 20,000 loans were advanced to first-time buyers in October, a rise of 14% compared to last month and up by 19% compared to this time last year. In total, loans to first-time buyers were worth £2.5 billion in October, up on the £2.2 billion in September and the £2.1 billion advanced at the same time last year.
At 80%, the average loan-to-value (LTV) ratio was unchanged in October compared to August and September – this figure has essentially remained static for the last two years.
First-time buyers continued to favour properties priced between £125,000 and £250,000 in October, with 49% buying properties in this band. The percentage of income consumed by initial mortgage interest and capital repayments was unchanged at 20.0%, remaining more favourable than in 2007 when total capital and interest payments typically consumed closer to 25% of first-time buyer income.
Loans to first-time buyers accounted for 40% of all house purchase loans in October for the second consecutive month.
Table 1: First-time buyers, lending and affordability
Number of loans | Value of loans £m | Average loan to value | Average income multiple | Proportion of income spent on interest payments | Proportion of income spent on capital and interest payments | |
October | 20,000 | 2,500 | 80% | 3.23 | 13.5% | 20.0% |
Change from September 2012 | 14.3% | 13.6% | 80% | 3.26 | 13.7% | 20.0% |
Change from | 19.0% | 19.0% | 80% | 3.23 | 12.2% | 19.5% |
Although not matching the same rate of growth as first-time buyers, lending to home movers increased in October. A total of 29,400 loans were advanced to home movers, worth £4.8 billion, a rise of 13% compared to September and up by 5% on the same period last year.
After three consecutive months at 69%, the LTV ratio for home movers ticked back up to 70% in October.
Table 2: Home movers, lending and affordability
Number of loans | Value of loans £m | Average loan to value | Average income multiple | Proportion of income spent on interest payments | Proportion of income spent on capital and interest payments | |
October | 29,400 | 4,800 | 70% | 2.90 | 10.2% | 19.4% |
Change from September 2012 | 13.1% | 9.1% | 69% | 2.90 | 10.4% | 19.5% |
Change from October 2011 | 4.6% | 4.3% | 70% | 2.91 | 9.2 | 18.9% |
On the back of the rise in lending to first-time buyers and home movers, loans for house purchase returned to the underlying upward trend seen earlier in the year. A total of 49,500 house purchase loans were advanced in October, up from 43,500 loans in September and 44,900 loans in October last year. This represented a 14% increase compared to last month and a 10% rise on October last year. By value, house purchase loans totalled £7.3 billion in October, up by 11% on September and the same period last year.
Table 3: Loans for house purchase and remortgage
Number of house | Value of house | Number of | Value of remortgage | |
October | 49,500 | 7,300 | 26,900 | 3,500 |
Change from | 13.8% | 10.6% | 11.6% | 9.4% |
Change from | 10.2% | 10.6% | -13.8% | -10.3% |
Following weakness in remortgage activity for most of the year, remortgage lending increased for the second consecutive month in October. Remortgage lending totalled £3.5 billion in October, up from £3.2 billion in September but remains low compared to historical levels and was 10.3% lower than October last year (£3.9 billion).
The CML said the small up-tick in remortgage lending suggests that the Funding for Lending scheme may be starting to have an early effect on remortgage lending, after subdued activity early in the year. The scheme has the potential to boost remortgage lending activity more quickly than house purchase due to the longer lag time in buying a property, the trade body added.
CML director general Paul Smee said: “More positive figures in October, after a slow September, suggest that the underlying trend in house purchase lending of modest year-on-year growth will continue. However, usual seasonal factors may act as a counter to lending levels in the coming months.
“An up-tick in remortgage lending may be an early sign of a small positive impact of the Funding for Lending scheme, but it’s still too soon to evaluate the effects of the scheme.
“If the incremental improvements in house purchase lending that we are currently seeing persist as we expect them to, then next year should feel a more stable and positive year in the housing and mortgage markets.”
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), added: “It appears the Government’s Funding for Lending Scheme has provided a boost to the remortgage market, as lending has risen significantly for the second consecutive month. Homeowners are beginning to take advantage of new, competitive LTV mortgages, and while we expect a seasonal lull in activity, this should be followed by further growth in the re-mortgaging and overall mortgage market in 2013.
“Another cause for optimism is the noticeable increase in purchase lending, with activity comparing favourably year-on-year. After the drop in house sales during 2011, we anticipate this year’s total will easily break through the 900,000 mark for the first time since 2008.
“Although a full recovery in the market will be no easy feat, competition has increased along with funding and there are signs of movement in the right direction. We are cautiously optimistic about 2013.”
