CML news & views

After the peak of the housing bubble in August 2007 when 103,000 loans for house purchase (worth £16.3 billion) were advanced, numbers began to dwindle fast to a low point in January 2009, when there were 23,000 loans for house purchase (worth £3.1 billion), the lowest number since the CML’s monthly records began in 2002.

The economy was worsening and house prices were falling. The public wanted to know why lenders were not lending but could not understand (and many still do not) the funding crisis that created a huge gap in the capacity to fund mortgages to match consumer demand. Those that could lend had to tighten criteria to such a point that many who wanted to enter the market were unable to do so.

First-time buyers were particularly badly hit. Only 8,600 entered the market in January 2009 – the first time the monthly number had gone down to four figures since 2002. The average deposit paid by first-time buyers in February reached 25% for the first time since 1974, when records began. This shows how lenders’ attitude to risk had changed since the credit crunch with only those with good credit histories and large deposits having access to the best deals in the market.

Bank rate had started 2009 at 2% and by March had been cut to its current unprecedented low of 0.5%. The average interest rate on new loans across the whole of the regulated mortgage market dropped steadily through 2009 ending at 4.04% in December. Apart from a brief period during the summer of 2003, this is the lowest interest rate on new loans since CML records began. For the year as a whole, only 2003 saw a lower average interest rate than the 4.34% of 2009.

Many of those who stayed in work enjoyed the benefits of lower mortgage costs. By the end of the year, the average mortgage interest payment as a proportion of income for house purchase loans was 11.6%. This was a far cry from the end of 2007, when it hit 18.9%. This figure tends to fluctuate significantly (because of movements in interest rates) but the 2009 average of 12.6% is much closer to the historical low of 10.9% seen 13 years previously than the high of 26.5% seen in 1990.

The average rate and the proportion of income consumed by interest payments are only two of many ways to assess mortgage affordability, but they start to show that, despite the worsening economy, for many of those able to meet the strict affordability and lending criteria, borrowing in 2009 was more affordable than ever.

February saw the number of loans for house purchase finally start to go up and saw the beginning of six straight months of increases. By December 2009, the figure was looking much healthier at 63,000 (mainly due to the stamp duty holiday) - still some way off pre-credit crunch levels but the last time the figure had been that high was two years previously.

On the other hand, the number of loans for remortgage continued to decline as low reversion rates and stricter credit criteria for the best deals made refinancing less attractive or more difficult. By December 2009, less than 28,000 borrowers remortgaged their property compared to nearly 100,000 during the busiest months of 2007.

Because of the low remortgaging figures, gross lending in 2009 looked very subdued with the highest amount of £14.1 billion in July. The total for the year of £143.6 billion was the lowest for nine years.

Despite subdued gross lending, there were some surprising developments. Most experts were caught on the hop as house prices reversed their downward trend and started climbing again, albeit slowly, and some who had decided against entering the market, eventually did so. The number of loans to first-time buyers hit a two-year high in December at 24,900, the highest number since November 2007, partly driven by a rush to beat the end of the stamp duty holiday.

The affect of the stamp duty concession in the UK regions varied greatly in 2009. Despite the low number of first-time buyers, they took more advantage of the concession than their home-moving counterparts all over the country. East Anglia benefitted the most, as 39% more first-time buyers were exempt from paying stamp duty in 2009 because of the concession. Northern Ireland also benefited with properties sold to first-time buyers for under £175,000 increasing from 62% of the first-time buyer total in 2008 to 86% in 2009.

Percentage of properties sold to first-time buyers for under £175,000 in 2008 and 2009

Source: CML/Banksearch

Borrowers taking out loans for house purchase in the South West paid the largest deposits in 2009, with an average of 30% but each region averaged at least 25%.

Unsurprisingly first-time buyers in Greater London were the oldest on average, aged 30, whereas those in the North and Yorkshire and Humberside bought their first home three years earlier. On average, those in the North also paid the smallest deposit, at 19%, with first-time buyers in the other regions were all paying between 20% and 25%.

When it came to people moving home, there was a large difference between the biggest and smallest deposits with those in the North having the smallest at 29% and those in the South West the largest at 45%.

The average age of a home mover was the lowest in the East Midlands at 32, whereas the North had the highest – the average home-mover there was eight years older at 40.

It was a two-tier market in 2009. Loans for house purchase climbed steadily throughout the year helped along by the government's stamp duty holiday but remortgaging weakened overall. The year started on a subdued note but ended much higher leaving the industry with a greater degree of optimism for the mortgage market in 2010.