House purchase lending rose 17% year-on-year in May, thanks primarily to a surge in high LTV lending, according to the latest Mortgage Monitor from e.surv, the UK’s largest chartered surveyor, and part of LSL Property Services.
In the strongest sign yet that the mortgage market is beginning to launch a sustained recovery, there were 57,076 approvals in May, marking the highest level of house purchase lending since last January. Discounting January 2012, May was the strongest month for house purchase lending since December 2009 – 41 months ago. There was also a strong monthly improvement: lending rose 5% between April and May, and was 9% higher than the average monthly lending figure over the past twelve months (52,186).
The increase in house purchase lending was driven primarily by an increase in the number of high LTV buyers (buyers with a deposit of 15% or less). The greater willingness from lenders to offer house purchase loans to high LTV borrowers fuelled the increase. Easing criteria, falling rates, and a wider choice of mortgages meant high LTV lending rose 26% from May last year, when there were just 5,283 loans to high LTV borrowers. On a monthly basis, high LTV loans rose 7% in May, from 6,230 in April to 6,678. Despite rising house prices, lenders have shown a greater willingness to lend to high LTV borrowers. Lenders have dropped rates on mortgages aimed at first-time buyers, eased criteria slightly and rolled out a wider range of high LTV mortgages.
Research from e.surv’s parent company, LSL Property Services, revealed the average mortgage rate for first-time buyers has fallen from 4.66% to 4.31% over the past year. This fall in rates was a significant factor in drawing more high LTV buyers into the mortgage market in May.
High LTV lending rose at a faster pace than low LTV lending in May. While total house purchase lending rose 17% from May 2012, loans to low LTV borrowers increased by just 15%, reflecting that it was in fact lending to high LTV borrowers that fuelled the 19% rise in total house purchase lending.
Richard Sexton, director of e.surv chartered surveyors, explains: “Lenders are lowering the drawbridge for first-time buyers. They are much more willing to lend to borrowers with deposits of 15% or less, which is starting to clear the logjam in the housing market. Rates are lower, criteria are easing, and there is a wider choice of mortgages available. What was just a trickle of high LTV borrowers at the beginning of the year has picked up pace, and now there is a steady stream of them buyers entering the mortgage market. And total house purchase lending has followed suit, hailing a renewed and improved market.”
The number of loans on properties under the value of £125,000 – typical first-time buyer purchase stock – rose in May. There were 13,127 loans on properties under the value of £125,000 in May, up 11% from April, when there were just 11,816 loans. And annually, there were 17% more loans on properties valued under £125,000, reflecting the growing number of first-time buyers.
Saving for a deposit is becoming harder
But research by LSL Property Services reveals saving for a deposit is becoming harder. The average deposit for a first-time buyer increased from £24,842 in April 2012 to £27,178 in April 2013, while the proportion of their income that this deposit represented rose accordingly, from 77.5% to 81.7%. The cause – rising house prices combined with weak wage growth – meant that the monetary value of the average deposit for a buyer is increasing at a rate that is higher than the increase in their wages. The difficulty in saving for a deposit now represents the biggest roadblock to a further increase in first-time buyer numbers
Richard Sexton explains: “Although high LTV lending has improved, lenders still require borrowers to cross a high threshold in order to access high LTV deals. And saving for a deposit is becoming ever more difficult. Savings rates are rock-bottom, and the cost of living and house prices are rising quicker than wages, which means a deposit represents an increasingly large proportion of a first-time buyer’s income. Increasing housing stock would ease the deposit burden on buyers, by slowing the rise of house prices. Building more houses is the key to making housing – and mortgages – more affordable.”