The number of loans advanced to first-time buyers in October returned to levels similar to those seen over the summer following a slow September, according to new data released today by the Council of Mortgage Lenders.
Lending to home movers also increased, contributing to a jump in house purchase lending. Remortgage lending, while still relatively modest, reached its highest level in 6 months.
First-time buyers
A total of 20,000 loans were advanced to first-time buyers in October, a rise of 14% compared to last month and up by 19% compared to this time last year. In total, loans to first-time buyers were worth £2.5 billion in October, up on the £2.2 billion in September and the £2.1 billion advanced at the same time last year.
At 80%, the average loan-to-value (LTV) ratio was unchanged in October compared to August and September – this figure has essentially remained static for the last two years.
First-time buyers continued to favour properties priced between £125,000 and £250,000 in October, with 49% buying properties in this band. The percentage of income consumed by initial mortgage interest and capital repayments was unchanged at 20.0%, remaining more favourable than in 2007 when total capital and interest payments typically consumed closer to 25% of first-time buyer income.
Loans to first-time buyers accounted for 40% of all house purchase loans in October for the second consecutive month.
Table 1: First-time buyers, lending and affordability
| Number of loans | Value of loans £m | Average loan to value | Average income multiple | Proportion of income spent on interest payments | Proportion of income spent on capital and interest payments | |
| October 2012 |
20,000 | 2,500 | 80% | 3.23 | 13.5% | 20.0% |
| Change from September 2012 | 14.3% | 13.6% | 80% | 3.26 | 13.7% | 20.0% |
| Change from October 2011 |
19.0% | 19.0% | 80% | 3.23 | 12.2% | 19.5% |
Home movers
Although not matching the same rate of growth as first-time buyers, lending to home movers increased in October. A total of 29,400 loans were advanced to home movers, worth £4.8 billion, a rise of 13% compared to September and up by 5% on the same period last year.
After 3 consecutive months at 69%, the LTV ratio for home movers ticked back up to 70% in October.
Table 2: Home movers, lending and affordability
| Number of loans | Value of loans £m | Average loan to value | Average income multiple | Proportion of income spent on interest payments | Proportion of income spent on capital and interest payments | |
| October 2012 |
29,400 | 4,800 | 70% | 2.90 | 10.2% | 19.4% |
| Change from September 2012 | 13.1% | 9.1% | 69% | 2.90 | 10.4% | 19.5% |
| Change from October 2011 | 4.6% | 4.3% | 70% | 2.91 | 9.2 | 18.9% |
House purchase lending
On the back of the rise in lending to first-time buyers and home movers, loans for house purchase returned to the underlying upward trend seen earlier in the year. A total of 49,500 house purchase loans were advanced in October, up from 43,500 loans in September and 44,900 loans in October last year. This represented a 14% increase compared to last month and a 10% rise on October last year. By value, house purchase loans totalled £7.3 billion in October, up by 11% on September and the same period last year.
Table 3: Loans for house purchase and remortgage
| Number of house purchase loans |
Value of house purchase loans, £m |
Number of remortgage loans |
Value of remortgage loans, £m |
|
| October 2012 |
49,500 | 7,300 | 26,900 | 3,500 |
| Change from September 2012 |
13.8% | 10.6% | 11.6% | 9.4% |
| Change from October 2011 |
10.2% | 10.6% | -13.8% | -10.3% |
Remortgage lending
Following weakness in remortgage activity for most of the year, remortgage lending increased for the second consecutive month in October. Remortgage lending totalled £3.5 billion in October, up from £3.2 billion in September but remains low compared to historical levels and was 10.3% lower than October last year (£3.9 billion).
The small up-tick in remortgage lending suggests that the Funding for Lending scheme may be starting to have an early effect on remortgage lending, after subdued activity early in the year. The scheme has the potential to boost remortgage lending activity more quickly than house purchase due to the longer lag time in buying a property.
Commenting on the data, CML director general Paul Smee said:
“More positive figures in October, after a slow September, suggest that the underlying trend in house purchase lending of modest year-on-year growth will continue. However, usual seasonal factors may act as a counter to lending levels in the coming months.
“An up-tick in remortgage lending may be an early sign of a small positive impact of the Funding for Lending scheme, but it’s still too soon to evaluate the effects of the scheme.
“If the incremental improvements in house purchase lending that we are currently seeing persist as we expect them to, then next year should feel a more stable and positive year in the housing and mortgage markets.”
Pad Bamford, Business Development Director – Mortgage Insurance Europe at Genworth, said:
“While it is positive to see the number of loans and volume of lending increasing to first-time buyers in October, perhaps the most telling statistic is the fact the average loan-to-value for first-timers remains at 80% and, as the CML admit, has remained static for the past two years.
With first-timers generally purchasing homes in the £125k-£250k price bracket this means that deposit levels of between £25k and £50k are required to get on the housing ladder – a seriously large amount by anyone’s standards and a significant drag on potential purchasers getting their first home.
If we are to see further increases in the number of first-time buyers, and also help those looking to make that second property step, we need to see a concerted effort from lenders to increase the amount of high LTV lending they conduct. We believe that a healthier 90/95% LTV mortgage market is possible if lenders look at all the options available to them including the use of mortgage insurance for higher LTV lending in order to help mitigate the risk they perceive lower-deposit borrowers to have.
If more lenders were to utilise the capacity available in the mortgage insurance market we anticipate a significant increase in lending to the first-time buyer sector and we would be able to help many more people onto the property ladder.”