November Best Month for House Purchase Lending since January 2008

The number of loans advanced to homebuyers in November climbed above 70,000 for the first time since January 2008, according to the latest Mortgage Monitor from e.surv, the UK’s largest chartered surveyor.

There were 71,920 house purchase approvals in November, a 6% increase on October, in a sign of growing lender and consumer confidence. Lending to home-buyers was 34% higher than a year ago, when the number of loans approvals came in at just 53,539.

In November, more than an eighth (13%) of all house purchase approvals were to high LTV borrowers, as lenders increased support to borrowers with deposits worth 15% or less of the total value of their property. There were 9,493 high LTV loans in November, 3% higher than in October, and almost double the number of high LTV loans than in November last year (4,872). It was the highest number of LTV loans advanced in a single month since April 2008.

The increase in approvals follows the release of new data from the Bank of England showing that net lending through the Funding for Lending Scheme tripled in the third quarter of this year. Net lending by banks using the scheme climbed to £5.8 billion between July and September, compared to just £1.6 billion between April and June.

Richard Sexton, director of e.surv chartered surveyors, explains: “The mortgage market is making definite strides back to its pre-crisis health. Between the tail-end of the summer and this autumn, lenders tapped the Funding for Lending Scheme for almost £6 billion worth of funds, and that honeypot is now filtering through to homeowners, in the form of more loans and cheaper rates. Despite the changes to FLS, the mortgage market will continue to thrive. Funding for Lending spurred a limping market into action at the beginning this year, but since then Help to Buy has taken the lead in driving the market forwards.

“November is defying expectations with a continued acceleration in house purchase lending. It comes amid good news of growing GDP and falling unemployment. Positivity is sweeping through the economy and encouraging more prospective homebuyers to the market. And lenders are extending more loans using FLS as a safety valve to release the pressure of lending to riskier high LTV borrowers.”

Increased lending in the South

Total lending improved in every region of the UK aside from Northern Ireland and the South West & South Wales in November, with the South showing a strong monthly pick-up in lending. The number of loans advanced to homebuyers in London rose 9% on October. And in neighbouring region the South East, approvals rose 8% on October.

High LTV loans are becoming more available across the country. In London, high LTV lending picked up sharply, rising 30% in a month to 827 high LTV loans. This trend was echoed in the South West & South Wales, where high LTV loans increased by 9% compared to October.

Richard Sexton, director of e.surv chartered surveyors, explains: “Help to Buy is taking up the mantle as Funding for Lending is phased out. It is an essential component in the nationwide recovery in lending. In London and the South East, house prices are rising rapidly, and many borrowers struggle putting together a reasonable sized deposit. Here, Help to Buy helps them access lower rates, with less of a deposit. In the North, there are fewer equity rich buyers, and more people are in need of a hand to get on the first rung of the housing ladder.

“But as lending to borrowers with smaller deposits increases, so does the risk of them defaulting on their mortgages, as rates rise. And with unemployment falling, a base rate rise could happen sooner than expected. A base rate rise of up to 1% at the tail-end of 2014 could be very realistic if the economy keeps recovering.  To combat this, lenders will inevitably increase stress testing, to ensure that loans are only issued to borrowers that can really afford them. Credit should be more accessible, but lending must be increased in a responsible manner to avoid revisiting the mistakes of the past.”

LOANS FOR HOUSE PURCHASE – seasonally adjusted

Month	Number	Monthly change	Annual change
June	58,838	+0.2%	+23.9%
July	61,642	+4.8%	+32.1%
August	63,529	+3.1%	+33.3%
September	66,891	+5.3%	+34.2%
October	67,701	+1.2%	+29.2%
November	71,920	+6.2%	+34.3%

Mortgage Advice Bureau: Quarterly Mortgage Applications up by 25%

•      Growing purchase activity fuels mortgage market resurgence
•    22% yearly growth in product range boosts consumer choice
•     Average two year rates not bettered since June 2007
•     Incomes are up and purchase LTVs down since March 2012 

A 25% increase in mortgage activity during the first quarter of 2013 points to a growing resurgence in the market, according to March’s National Mortgage Index from Mortgage Advice Bureau – the UK’s leading independent mortgage broker.

Combined purchase and remortgage cases were up by a quarter during the first three months of 2013, compared with the final three months of 2012, and by 18% compared with the equivalent period last year.

Using data from more than 500 brokers and 800 estate agents, the National Mortgage Index shows the strongest momentum is with purchase activity, helped by an 11% monthly increase to March 2013.  This boosted the quarterly increase in purchase business to 26%, compared with 22% for remortgages, which dropped by 2% in the month.

Total mortgage activity for March was 22% higher than in March 2012, fuelled by a 13% annual increase in purchase mortgage cases and 19% more remortgage cases.

Lender competition drives consumer choice:

Competition for business between lenders meant there were more mortgage products available on average during March – 9,269 – than any month since November 2011.  Apart from December 2012, when the average total fell by 1%, consumer choice has improved every month since the Funding for Lending Scheme (FLS) was launched in August 2012. 

There were 20% more products available on average during March, compared with July 2012 before the FLS launched, and 22% more than in March 2012.  Recent growth has been driven by intermediary products, which increased by 4% in the month and by 22% under the FLS to 6,644 – the widest range on offer since December 2011.

While direct-only products have grown by 15% under the FLS, their number fell by 4% in March to 2,625.

March also saw the average two year fixed rate drop below 4% to 3.9%. This figure – the lowest since MAB’s records began in June 2007 – is 0.78% lower than in July 2012 before the FLS came into effect.

Typical homebuyers are nearly £3,400 better off than last year:

The average homebuyer in the first quarter of 2013 earned noticeably more than the same time last year, with an average income of £38,660 – £3,372 more than in the first quarter of 2012.

Better product pricing meant they were also far likelier to opt for fixed rate deals.  While three quarters of buyers (75%) chose to fix at the start of 2012 – when average fixed rates ranged from 4.76% to 4.27% – this increased to 92% during the first quarter of 2013, tempted by fixed rates averaging between 4.47% and 3.90%.

Conditions have improved marginally in 2013 for homebuyers with limited deposits. Average purchase deposits were almost £2,500 lower in the first quarter of 2013 (£61,671) than the final quarter of 2012 (£64,153).

However, despite increasing by 1% in the first quarter of 2013 to 71%, the average loan to value (LTV) for purchase mortgages remained almost half a percentage point lower than in the first quarter of 2012 – signalling the need for initiatives such as Help To Buy to encourage higher LTV lending.

In another sign of continuing caution from lenders, homebuyers’ average income at the start of 2013 continued to make up more of the average loan (25.7%) than in the first quarter of 2012 (24.4%).

Remortgage customers borrow more and put forward less equity:

The biggest shift in LTVs at the start of 2013 benefited remortgage customers as activity continued to improve following a slump in 2012. 

Whereas the typical consumer borrowed 55.5% of their existing property’s value at the end of 2012 – putting £119,134 forward as equity – the typical remortgage increased to 59.8% of the property value in the first quarter of 2013, with the typical equity down by over £5,000 to £113,864.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

“There has certainly been no shortage of options when it comes to selecting mortgage products so far this year. Lenders have served up a feast of offers that have fed consumer demand with some exceptionally low fixed borrowing rates.

“What we need are greater helpings of funding for people on the fringes of the market, who are either knocked back because of strict criteria or scared off by towering deposits. We are almost halfway through the FLS, but despite the incentive to increase lending, the average borrower is still putting up almost 30% of their property’s value as a deposit.

“Not everyone has this kind of money available, so Help To Buy is definitely needed to open the market up to more would-be homeowners. Interest in house purchases is already far healthier than it was last year, and we are confident there is plenty more to come.”

 

Brokers split over impact of Funding for Lending Scheme

Intermediaries are divided over the benefits of the Government’s Funding for Lending Scheme (FLS) for the mortgage market, according to a survey by the Intermediary Mortgage Lenders Association (IMLA).

Nearly half (43%) of mortgage brokers felt that the FLS is having a positive impact – yet almost as many (41%) took the opposite view.  Despite the Bank of England figures for November 2012 revealing £1bn extra mortgage lending by the major UK lenders in the first four months of the scheme compared to the same period in 2011, the results suggest brokers are divided over the extent to which the incentive is working to stimulate the market – highlighting the fact that, while there are more mortgages and prices have improved, supply is still tight.

When questioned about the anticipated impacts of the FLS, the most common expectation among brokers was a reduction in mortgage rates (77%). Just over half (51%) thought it will result in an increase in the availability of loans (51%), while slightly fewer (49%) predict more lending at higher loan to value (LTV) ratios. Industry figures suggest the FLS has begun to deliver on all three fronts, but the outcome will vary when measured by what individual brokers can source.

In a separate survey, IMLA members – representing more than 80% of lending in the intermediary sector – were unanimous in predicting an increase in high LTV lending at 85-89% and 90-94% during 2013.  However, over half (57%) felt there would be no extra lending at 95-99% LTV, and less than one in five (14%) expected any increase in 100% LTV loans.

Peter Williams, Executive Director of IMLA, comments:

“It is interesting to see the divergence of views among brokers on the impact of the FLS given the rather more healthy level of activity in the market. I am confident this is partly due to the scheme still being relatively new, and that more intermediaries will see its benefit as the year progresses. We will certainly be better placed to judge its merits as more of the potential £80bn pot makes its way from lenders to consumers. At the same time, IMLA accepts that brokers’ experiences will vary and FLS is only part of what is needed. IMLA will continue to work to see more mortgage funding becoming available.

“It is also important to remember that the scheme was designed to boost overall lending to households and businesses; and not explicitly to improve access to funding for those who were previously shut out.  As expected, we have so far seen the FLS drive down pricing, with the most benefit enjoyed by people who already had access to funding, albeit at higher rates.

“In this respect, the scheme could certainly be targeted more effectively, and our expectation is that we will see more product innovation and higher LTV transactions emerging this year. There is an opportunity for lenders to explore this area of the market, but given the emphasis on affordability in the Mortgage Market Review (MMR), it is no bad thing that it has not triggered a rush to offer high LTV mortgages.”

2012 SEES STRONGEST ANNUAL GROWTH FOR THREE YEARS

	October-12	November-12	December-12
Average house price	£204,842	£204,289	£202,824
% monthly change	0.7%	-0.3%	-0.7%
% annual change	1.9%	2.8%	3.4%

 

Analysis of data from the leading UK house price indices reveals that the UK housing market saw monthly price growth slow in the fourth quarter. However, strong growth in the opening six months meant prices still ended the year up 3.4% The average price of a home is now £202,824, an increase of £6,634 since December 2011.

 

 

 

	Aug-12	Sep-12	Oct-12	Nov-12	Dec-12
Acadametrics LSL	£226,081	£226,299	£226,577	£227,038	£227,026
ONS	£234,000	£233,000	£231,000	£232,000	£232,000
Nationwide	£164,729	£163,964	£164,153	£163,853	£162,262
Halifax	£160,142	£159,467	£159,313	£161,795	£163,845
Rightmove	£236,260	£234,858	£243,168	£236,761	£228,989
Average	£204,242	£203,518	£204,842	£204,289	£202,824

 

 

Graph 2, below, reveals the annualised rate of growth for each month’s data and is less volatile than the individual indices themselves. Annualised rate of growth is the annual change in value that would be registered if the monthly rate of change were maintained for a full year. House Price Watch also regularises this data over three and six month periods, providing a less volatile representation of market trends than individual monthly snapshots.

 

The annualised average rate of growth for December was -8.6% while the three, six and 12 month annualised rates of growth are -1.4%, -3.4% and 3.4% respectively.

 

 

 

Stuart Law, Chief Executive of Assetz, said:

“In spite of some downbeat forecasts, 2012 saw the strongest calendar price growth for three years, comfortably achieving our predicted 3%. Following a healthy first six months, there was an inevitable price correction in the second half.

“The UK housing market in 2012 was buoyed by an influx of buy to let investors from home and abroad which has increased competition for the best properties in areas where there is strong employment prospects, transport connections and amenities. For this reason, the market remains two tiered with London and the commuter heartlands of the South East and regional cities such as Manchester, Leeds and Liverpool seeing stronger prices rises than elsewhere in the UK.

“With the base rate set to enter a fifth year at its historic low of 0.5% we could see many more new landlords diverting capital from low interest savings accounts to high yield property investments. This coupled with the greater availability of mortgage finance as part of the Funding for Lending Scheme (FLS) will support growth.

 

“We are confident of price growth of as much as 5% this year which would leave prices just shy of the 2007 peak in nominal terms and their highest since February 2008. The property market is well advanced on its slow road to recovery.”

Mortgage Advice Bureau comment on CML figures

Brian Murphy, head of lending at leading independent broker Mortgage Advice Bureau (MAB), says:

“The CML figures for June mirror MAB’s National Mortgage Index in that mortgage activity remains volatile, and we expect this to continue for the rest of the year.

“Last month the poor weather and the Jubilee celebrations were a drag on activity, but looking forward to the rest of the year the launch of the FLS shows promise. If we are to see a return to sustained growth we need to see more flexibility from lenders and more good quality borrowers getting access to mortgage funding. The FLS could see more than £80bn lent into the real economy, and with several of the high street lenders already signalling their intention to access the scheme some of this money should find its way into the mortgage market.”