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April sees anticipated decline in mortgage lending

14 Jun 12

April sees anticipated decline in mortgage lending

Following the surge in activity in March, April saw a significant fall in house purchase lending, in particular to first-time buyers, according to new data from the Council of Mortgage Lenders. This was in line with expectations and was caused by the distorting effect of the March ending of the stamp duty concession.

The largest fall was to first-time buyers, with lending at around half the levels of the previous month.

The drop off in activity for first-time buyers was seen mainly among properties that would have qualified for the exemption in March so were subject to stamp duty in April. Purchases of properties valued between £125,000 and £250,000 fell by 70% in April compared to March. In contrast those valued at £125,000 or below, so still exempt from stamp duty, fell by a more modest 11%, while first-time buyer purchases for properties over £250,000, so not eligible for the exemption in any case, fell by only 5%. 

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

April 201212,6001,50080%3.1212.5% 19.1%
Change from March 2012-48%-52%80%3.3413.1% 19.8%
Change from April 2011-12%-12%80%3.1613.3% 19.8%


In total, 12,600 loans were advanced to first-time buyers, down by 48% compared to March and 12% compared to April 2011. By value, first-time buyers borrowed £1.5 billion, down 52% compared to March and 12% compared to April last year.

The change in the mix of properties bought had knock-on effects on first-time buyer loan characteristics. The average loan amount fell from £117,000 in March to £98,000 in April and first-time buyers typically borrowed 3.12 times their income, down from 3.34 in March. These changes are almost wholly because of the trend in April towards cheaper properties rather than a real improvement in affordability for first-time buyers.

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
 

April 201223,4003,80070%2.8710.0% 19.1%
Change from March 2012-15%-14%70%2.929.9% 19.2%

Change from April 2011

3%

3%69%2.8410.0% 19.0%

Lending to home movers also fell. 23,400 loans worth £3.8 billion were taken out in April, down by 15% (14% by value) compared to March but an increase of 3% (by volume and value) compared to April 2011.

Total house purchase lending in April fell from 51,600 loans, worth £7.4 billion, in March to 36,000, worth £5.3 billion, in April. Remortgaging also saw a fall, with £3.1 billion advanced, down 14% compared with March and the lowest monthly total since December 2010.

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
 
April 201236,0005,30025,1003,100
Change from March 2012-30%-28%-12%-14
Change from April 2011-3%-2%-4%-3%

Nearly all first-time buyers currently take out repayment mortgages, 98% in April, unchanged from March. The proportion of home movers and those remortgaging doing so also continues to increase with around 85% of home movers and 82% of remortgagors taking out full capital repayment mortgages. Reflecting the fact that repayment mortgages are now taken out by the vast majority, CML monthly data will now show the total proportion of income spent on capital and interest payments by those choosing this method, as well as the longstanding affordability measure of the proportion of income spent on interest alone. In April, first-time buyers spent 19.1% of their income on both payments (compared with 12.5% on interest alone), down from 19.8% in March (13.1% on interest alone).

Paul Smee, director general of CML, commented:

"April's figures show the expected effect of the end of the stamp duty concession on UK mortgage lending. Given the economic uncertainty, any significant pick up in lending in the coming months seems unlikely.

"However, our recent research highlights that over 80% of people still aspire eventually to own their own homes, and long term demand clearly still exists."

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 May 2012 data will be released on Thursday 12 July 2012.

5. From this month we are including a new data series showing the proportion of income paid on a capital-and-interest repayment mortgage by those borrowers who choose this method. This includes a back run of data to 2005. CML News & Views on 26 June will include further information on the capital-and-interest affordability measure.

 

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