Market stabilising but not yet 'normal'

11 Aug 09

New data from the Council of Mortgage Lenders shows further signs of stabilisation in the mortgage market, but transactions are still weak on a historic basis. Lending for house purchase and remortgaging both increased in June, albeit from very low levels.

There were 45,000 house purchase loans, worth £5.9 billion, up 23% from 36,500 loans in May. However, this is less than half the average number of loans in June over the last seven years. A total of 116,700 house purchase loans were advanced in the second quarter, a 50% increase from the preceding three months but down 22% from the second quarter of 2008.

Table 1: 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
June 2009	45,000	5,900	34,000	4,200
Change from May 2009	+23%	+26%	+13%	+14%
Change from June 2008	-6%	-17%	-55%	-60%

The number of loans for remortgage increased by 13% from May to 34,000 loans in June. But low interest rates have dampened demand for remortgaging in the second quarter with 96,000 remortgage loans, a 21% fall from 122,000 in the previous quarter.

Fixed rate deals have increased in take-up throughout the second quarter and by June made up 78% of new lending, the largest share since June 2007. This appears to be supply-driven, reflecting the more widespread availability of fixed-rate products in the marketplace.

Table 2: 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
June 2009	17,200	1,900	75%	3.08	14.9%
Change from May 2009	+26%	+27%	75%	3.04	14.9%
Change from June 2008	-7%	-21%	87%	3.33	19.8%

There were 17,200 loans to first-time buyers worth £1.9 billion, up from 13,700 loans in May but below the 18,400 in June last year. There were 27,800 loans to home movers worth £4 billion, up from 22,700 in May but down from 29,500 in June last year.

Table 3: 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
June 2009	27,800	4,000	69%	2.76	11.3%
Change from May 2009	+22%	+25%	69%	2.74	11.4%
Change from June 2008	-6%	-17%	72%	2.94	17.1%

Affordability measures for homebuyers were broadly static in June, but the tightening in criteria since the onset of the credit crunch appears to have ended. The typical first-time buyer had a 25% deposit, unchanged since February. Home movers typically borrowed 69% of the property’s value, unchanged from April.

Income multiples have also started to increase modestly, with the typical first-time buyer borrowing 3.08 times their income, compared to 3.04 in May, and home movers typically borrowing 2.76, compared with 2.74 in May.

CML economist Paul Samter said:

“Low interest rates and realistic selling prices have helped generate a welcome increase in transactions. But there is some way to go before we reach normal levels of activity.
“There are tentative signs that lending criteria are easing, but remortgaging demand is likely to remain subdued whilst interest rates stay at current levels.”

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 98% of all residential mortgage lending in the UK. There are 11.1 million mortgages in the UK, with loans worth over £1.1 trillion.

2. Source: CML/Banksearch.

3. The July RMS data will be published on Monday 14 September 2009.