House purchase approvals rose from 53,504 to 54,364 – the second consecutive monthly increase – as the mortgage market continued on a trajectory of recovery. House purchase lending is 6% higher than in April 2012, and is 5% higher than the average monthly lending figure over the past year: 51,536.
House purchase lending has fallen in just two out of the last nine months, and the improvement in April is the latest in a series of signs that the mortgage market may finally be beginning to recover.
The improvement over the past year has been driven by a significant increase in high LTV lending, with lenders more willing to offer mortgages to borrowers with an 85% LTV or higher.
While lending across the market rose 6% annually, the improvement in lending to high LTV borrowers was significantly greater. House purchase lending to high LTV borrowers was 14% higher than in April 2012, rising from 5,545 to 6,306 approvals. Proportionally, one in nine house purchase approvals in April were to high LTV borrowers. It reflects the success of the Funding for Lending Scheme (FLS) in helping lenders boost mortgage availability and gear new mortgages towards first time buyers and high LTV borrowers. FLS has encouraged lenders to ease criteria slightly, with the guaranteed funding source increasing their confidence. There are now a wider and cheaper range of mortgages on the market.
The rise in high LTV lending was reflected in an increase in number of loans issued on the cheapest properties worth under £125,000 (typical first-time buyer housing stock). Despite house prices rises over the last year, there were 11,960 loans on properties worth under £125,000 in April 2013, compared to 11,809 this time last year, suggesting more first-time buyers are getting on the property ladder compared to twelve months ago.
Richard Sexton, director of e.surv chartered surveyors, explains: “The mortgage market is at its strongest since the financial crisis. Approvals fell in January and February, but those months were the exception, not the rule, to a trend of increasing lending dating back to August last year. The first-time buyer market is beginning to fizz again, thanks largely to a wider and cheaper range of mortgages on offer. Lenders are more confident, which is making credit more freely available. Compared to this time last year, rates are lower, criteria are looser, and lenders are more willing to lend to high LTV borrowers.”
There has been a steady increase in house purchase lending since the introduction of Funding for Lending (FLS) last August, as banks rolled out record low mortgage rates, and a greater choice of mortgages. And the increase in house purchase approvals in April came as the economy avoided a triple-dip recession, with growth of 0.3% in the first quarter.
But, despite the overall rise in house purchase approvals, lending to high LTV borrowers remained flat between March and April. This suggests that there are still barriers preventing a more substantial rise in the number of high LTV loans, namely: tough lending criteria, the high costs of living, and high deposit requirements. High LTV lending was 2% lower in April than the monthly average for the first quarter. In the first quarter of 2013, the average number of approvals per month to high LTV borrowers was 6,409, but in April this had dropped to 6,306.
Richard Sexton explains: “The mortgage market is beginning to bloom, as more people look to move. But, like a weed strangling a seedling craning to grow towards the light, tight lending criteria and high costs of living continue to limit the growth of the first-time buyer market. True, the environment for high LTV borrowers is much healthier than last year, but the weakness of the economy is a lead weight round the neck of the mortgage market, and is stopping more significant improvements.
“Tough criteria are still a road block for many, and high inflation and weak wage growth still mean it is very hard for buyers to save for a deposit.”