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Stamp duty effect felt well beyond first-time buyer market

16 May 12

Stamp duty effect felt well beyond first-time buyer market

As expected, the end of the stamp duty concession led to a surge in activity in the mortgage market in March, according to new data released today by the Council of Mortgage Lenders.

The largest increase was in lending to first-time buyers, who took out 24,000 loans in March. This was an increase of 74% compared to February and 57% higher than March 2011. By value, first-time buyers took out loans worth £3 billion, up 76% from the previous month and 67% from March last year. First-time buyers accounted for 42% of total house purchase loans, the highest proportion since 2001.

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

March 201224,0003,00080%3.3413.1%
Change from February 201274%76%80%3.2612.5%
Change from March 201157%67%80%3.1513.0%


Of those first-time buyers taking out a mortgage in March, 63% bought a property valued between £125,000 and £250,000 so were exempt from stamp duty. This compares to an average of around 50% since 2006 (except immediately before and after the end of the previous stamp duty concession). 98% of first-time buyers in March took out a repayment loan, the highest since CML records began.

Although the stamp duty holiday only related to first-time buyers, the tendency for property transactions to involve ‘chains’ resulted in knock on effects to other house purchasers also. 27,200 loans, worth £4.3 billion, were taken out by home movers in March, up by 25%, 19% by value, compared to February and 15%, 10% by value, compared to March 2011.

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

March 201227,2004,30070%2.929.9%
Change from February 201225%19%70%2.939.8%

Change from March 2011

15%

10%69%2.859.8%

Combined, the total increase in the number of house purchase loans in March was 44% (40% by value) from February and 31% (30% by value) compared to last March.

Remortgage activity, on the other hand, was essentially flat. £3.6 billion was advanced in the month, unchanged from February, and 14% lower than March 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
 
March 201251,2007,40028,2003,600
Change from February 201244%40%1%N/C
Change from March 201131%30%-18%-14%

On a quarterly basis, the lending picture was different, showing a less marked annual improvement than the monthly data. There were 5% fewer first-time buyers in the first quarter compared to the final quarter of last year, but 33% more than the first quarter of 2011. Home movers took out 18% fewer loans in the three months to March than in the previous three months, but 14% more than the first three months of 2011. The total value of loans for remortgage also fell in the first quarter of the year. £11 billion was advanced in the first quarter, 7% lower than the previous quarter and a 4% fall compared to the first quarter of 2011.

CML director general Paul Smee said:

"We expected this significant increase in borrowing for March because of the stamp duty holiday. However, if lending follows the same pattern as after previous stamp duty concessions, we will likely see a drop in activity in the next few months. It will take some time before we can judge whether other initiatives such as the NewBuy scheme and the reinvigorated right to buy will compensate for this effect."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.3 million mortgages in the UK, with loans worth over £1.2 trillion.

2. Source: CML Regulated Mortgage Survey.

3. The Council of Mortgage Lenders does not publish statistics for mortgage approvals. The data in our monthly Regulated Mortgage Survey and gross lending press releases relate to mortgage advances only. A mortgage approval is the firm offer to a customer of a specific amount of credit secured against a particular property. A mortgage advance is the total amount of loan actually provided to the buyer, by the lender. Please see the mortgage statistics timeline on our website for further information.

4. The April 2012 data will be released on Thursday 14 June 2012.

 

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