In the first of a series of new quarterly reports on lending in London, the Council of Mortgage Lenders reports that a total of 10,000 first-time buyers took out a mortgage in London in the third quarter of 2012. This was the highest number in the capital in a single quarter for almost three years.
Alongside the new quarterly report, the CML also published a new analysis, Housing in London: challenges and solutions.
London’s housing market is unique: at 50%, the level of home-ownership is the lowest in the UK, yet because the city is so large it has nevertheless accounted for 28% of the value of all first-time buyer lending in the UK over the last year.
What makes London’s first-time buyers different?
First-time buyers in London put down larger deposits than in other parts of the UK despite higher house prices and tougher affordability criteria. First-time buyers in London purchased properties with an average loan-to-value (LTV) ratio of 75%, a figure unchanged since the third quarter of 2008, and less than in the rest of the UK at 80%.
Chart 1: First-time buyers number of loans and average LTV, London
Source: CML regulated mortgage survey
While it may seem counter-intuitive that London’s first-time buyers put down larger deposits when house prices are higher and affordability more constrained, the characteristics of London’s first-time buyers differ from the UK average in several key areas:
- First-time buyers are older in London (average age of 31) compared to the rest of the UK (29) with more time to build savings and achieve higher paying employment.
- Parental assistance is greater. Recent estimates indicate that only 28% of first-time buyers in London bought unassisted, compared to 34% in the UK overall.
- Their incomes are higher. The average first-time buyer household in London had an income of £50,000 compared to £34,000 in the UK overall. They borrowed an average of 3.5 times their income with mortgage payments typically consuming 21.3%, compared to figures in the rest of the UK where the average income multiple amounted to 3.25 and 20.1% of income was taken by mortgage payments.
- First-time buyers in London make up a larger proportion of the total mortgage market – around 50% compared to around 40% in the UK overall, reflecting demographics in London where there tend to be more young people of a typical first-time buyer age.
The composition of mortgage lending in London
Loans for house purchase in London increased in the third quarter, as in the rest of the UK. A total of 20,600 house purchase loans (worth £5,070 million) were advanced in London, up by 22% compared to the second quarter and a 4% increase compared to the same period last year. This rate of growth compared favourably to the UK overall, where house purchase lending increased by 13% on the second quarter. The total value of loans for house purchase (5,050 million) marked the highest figure since the last quarter of 2007.
Chart 2: House Purchase lending in London: number of advances and house purchase lending in London as a percentage of the UK total (1 year moving average)
Source: CML regulated mortgage survey
Contributing to the increase in house purchase lending, lending to home movers rose by 18% compared to the second quarter. A total of 10,500 loans (worth £2,950 million) were advanced to home movers in London, slightly lower than the 10,600 loans taken out in the third quarter of 2011. The LTV ratio for home movers fell in the third quarter – at 66% it is now at the same level as the first quarter of 2011.
As in the UK overall, remortgage lending in London was weaker in the third quarter compared to both the previous quarter and the same quarter last year. A total of £2,050 million was advanced to borrowers remortgaging in the third quarter, down from £2,120 million in the second quarter, and a 16% fall compared to this time last year.
Chart 3: Year-on-year percentage change in remortgage lending: London and the UK
Source: CML regulated mortgage survey
Commenting on the data, CML director general Paul Smee said:
“The London housing market faces similar issues to the rest of the UK in terms of a lack of supply and affordability, yet different demographics, population flows and tenure patterns mean that it is also unique.
“With the Mayor now directly responsible for housing strategy and investment in London, we look forward to seeing his finalised London Housing Strategy. Lenders want to be recognised as part of the solution and we will work constructively with the government and the GLA on deliverable solutions to London’s housing challenges.”