Recovery in house purchase lending focused in the North

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High LTV house purchase lending rose 47% year-on-year in August, as lending to high LTV borrowers improved significantly in the North, according to the latest Mortgage Monitor from e.surv, the UK’s largest chartered surveyor.

There were 7,093 loans to borrowers with a deposit of 15% or less in August, compared to just 4,827 in August 2012, as banks increased lending to high LTV borrowers.

The recovery in high LTV lending – the driving force behind the wider recovery in the mortgage market – was focused in the North. 21% of all house purchase loans in the North East & Cumbria were to high LTV borrowers in August – the highest proportion of any region. The regions with the second and third highest proportion of high LTV borrowers were the North West and Yorkshire – 20% and 18% respectively.

Across the UK, there were 60,114 house purchase loans in August, 26% higher than twelve months ago. It marked the strongest August for house purchase lending since August 2007.

The hike in high LTV house purchase lending was reflected in a significant rise in the number of loans made on properties up to the value of £125,000 – typical first-time buyer property. In August there were 13,826 loans on properties up to this value, 16% more than in August 2012, when there were 11,949.

But monthly figures show that the improvement in lending is being slowed by rising house prices and weak wage growth. House purchase lending fell 1% from 60,624 approvals in July. And lending to high LTV borrowers fell 5% in the month to August, despite the significant recovery on last year.

Richard Sexton, director of e.surv chartered surveyors, explains: “House prices in the North have risen more slowly over the last five years than in much of the UK, and so that’s driven a boom in high LTV borrowers in the North – for whom house purchase loans are still affordable. High LTV lending is the fuel powering the mortgage market recovery. Borrowers with smaller deposits fell out of the bottom of the market when the financial crisis hit, but they are returning now in their droves. Banks are easing lending criteria, and mortgage rates are low. That means repayments are cheaper. Access and affordability – the two keys to the mortgage market – have improved, and unlocked the market for high LTV borrowers.

“But there are already signs that the recovery at the bottom end of the market could slow. Borrowers looking to take out mortgages with smaller deposits are typically first-time buyers. They’re hit the hardest by rising house prices, low savings rates, and high inflation. Weak wage growth, which is consistently tracking below inflation, is another factor. Even though banks are more willing to offer mortgages to borrowers with smaller deposits, it’s harder to put together the deposit in the first place.”

Further Regional Breakdown

The Midlands was the region showing the biggest improvement in lending to high LTV borrowers. Last August just 11% of all approvals in this region were to high LTV borrowers, but that figure has climbed over the past year to 15%. Factoring in a rise in approvals nationwide, this equates to 450 more loans – a 66% rise in the total number of approvals.

But the story in the capital is less positive – the only region in the UK in which loans to high LTV borrowers have fallen proportionally. In London, although total approvals have risen over the last year, the proportion of high LTV loans has fallen 0.3%. There were 9,438 loans to borrowers in London in August, but only 3.8% of these were to high LTV borrowers.

Richard Sexton explains: “In London, the market is dominated by equity rich borrowers, and that domination is getting stronger. This is a result of rising house prices – which are pricing many buyers out of the market. It’s compounded by a lack of supply in the capital – which is prices up faster than the rest of the country. The only solution – other than to increase support for borrowers – is to add more housing stock, to try and match demand.”

LOANS FOR HOUSE PURCHASE – seasonally adjusted

 

Month

Number

Monthly change

Annual change

March

54205

3.2%

7.3%

April

54635

0.8%

6.6%

May

58542

7.2%

19.7%

June

58238

-0.5%

22.7%

July

60624

4.1%

29.9%

August

60114

-0.8%

25.8%

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