Home lending up and remortgaging falls

Tuesday, 14 April 2009 10:24 AM

Home purchase lending has increased and remortgaging declined according to new data released by the Council of Mortgage Lenders (CML) today.

There was a four per cent increase in house purchase loans in February, although activity remained weak at a third of the average number of loans witnessed for the month over the last few years.

There was also a 20 per cent decrease in remortgaging for the month, with the CML saying, "we expect demand for remortgaging to remain muted as lenders' standard variable rates are attractive compared to new mortgage pricing, and house price falls continue to erode equity levels".

Although first-time buyer loans were significantly lower than previous averages for the month, there was a seven per cent increase from January, with deposits typically standing at 25 per cent; a new record for the RMS.

The CML said the tight lending criteria for first-time buyers meant such deposits "remain out of reach for all but the most affluent buyers, for example people returning to home ownership after a period of renting, divorcees, or those who get financial assistance from their family".

First-time buyers typically borrowed 2.95 times their income, down from three times in January; with the average first-time buyer loan at £95,000, down from £97,000 in January and £114,000 in February last year.

Michael Coogan, CML director general, said: "Recent mortgage approvals figures published by the Bank of England show some signs of improvement at the beginning of the borrowing process, although activity is at a very low level historically.

"We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year."

For those able to get a mortgage affordability was easier, with interest payments for the average first-time buyer costing 15.4 per cent of their average income, compared with 20.1 per cent in February 2008; the lowest proportion since June 2004.

The RMS also found there was a shift away from tracker mortgages towards fixed-rates, with 56 per cent of new loans at fixed-rate, up from 49 per cent in January.

Mr Coogan added: "Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.

"We need further market measures to be introduced by the government around the Budget to encourage a mortgage market where all types of lenders - banks, building societies and specialist lenders, and large and small businesses - are encouraged, and enabled, to commit more funds to the mortgage market if we are to enhance lending activity significantly."

The CML also found how fewer homebuyers were paying stamp duty, as a result of falling house prices and the temporary raising of the nil-rate threshold.

Nick Hopkinson, director of Property Portfolio Rescue (PPR), has warned: "We still have a long way to go before we can claim any signs of market recovery. Today's data from CML is not seasonally adjusted and shows that the number of home purchases with mortgages in February is almost 70 per cent below the average for this month over the last five years.

"These numbers are dire, as mortgages continue to be almost impossible to obtain without a huge deposit or near perfect credit rating.

"Our latest UK Distress Index forecasts that repossessions are set to push 70,000 this year and we expect to see unemployment exceed 3.5 million by the first quarter of 2010. The outlook is still very bleak."

Sarah Garrod

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