Published: 15 February 2011 | Author: Bernard Clarke
The number of loans for house purchase fell in December by 4% to 39,900, according to data from our regulated mortgage survey, published last week. House purchase lending was also 5% lower by value than in November, at £5.7 billion. And year on year, it was down 37% by volume and 33% by value.
Publication of the most recent data means that we now have figures for mortgage lending in 2010 as a whole. So, we are taking this opportunity to look back at some of the key developments in a year that saw stability restored to the market – but at subdued levels of activity.
The pattern of activity in 2009 had been distorted by the stamp duty concession coming to an end in December. That meant that 2010 got off to a slow start with 32,300 loans for house purchase in January, worth £4.8 billion, which proved to be the lowest total for the year. Monthly data throughout 2010 never exceeded the December 2009 totals of 62,900 loans for house purchase, worth £8.5 billion. The most buoyant month was July when there were 55,600 house purchase loans, worth £8.4 billion.
The year as a whole saw slightly more activity than 2008 and 2009, with 529,300 loans for house purchase, worth £77.1 billion. But lending was still at around only half the level of 2007. House purchase loans started the year at 55% of the total mortgage market but this figure increased to 63% by July, as remortgaging remained subdued. By the end of the year, however, lending for house purchase had declined to 54%, with remortgaging picking up as borrowers began to anticipate a rise in interest rates.
Chart One: House purchase loans and remortgaging
The yearly totals for remortgaging, with 313,200 loans, worth £39.3 billion, were less than a third of the levels we saw before the credit crunch, and accounted for 29% of the mortgage market in 2010. This represented a huge drop compared to the middle of the last decade when the number of remortgaging loans exceeded those for house purchase over several years.
Since the onset of the financial crisis, lending of all types has dropped substantially, but the effect on remortgaging has been particularly pronounced. Low interest rates have led to low reversion rates at the end of tie-in periods, so for many borrowers there has been little incentive to remortgage away from their current deals. Meanwhile, the persistence of tight credit conditions means that some borrowers are unable to re-finance.
First-time buyers and movers
In 2010, there were 194,600 first-time buyers, less than half the total in 2006.
During the year, 334,700 mortgages, worth £53.9 billion, were advanced to home movers. The number was 6% higher than in 2009, but only around half the average for the last decade. Home movers made up 63% of the house purchase market in 2010, an increase of just 1% on 2009. However, the value of mortgages advanced to movers was up 14% from 2009. July saw the highest number of home movers during the year, with 36,100, borrowing £6 billion – the highest monthly amount since December 2007.
The typical home mover in 2010 was aged 40, earned £47,807 and borrowed £131,750. Since the onset of the credit crunch, the loan-to-value ratio has not fallen as drastically for movers as it has done for first-time buyers. Home movers needed to borrow 68% of their property’s value in 2010, compared to 73% in 2007.
People moving in 2010 were paying less than 10% of their income to cover the mortgage interest, the lowest proportion since our records began. In January 2010, 70% of movers took out a capital repayment mortgage, and the proportion crept steadily higher all year, ending in December with 77%, the highest percentage since 2005.
In 2010, 67% of properties bought by first-time buyers were for sums below £175,000 compared to 73% in 2009. For all house purchase transactions, the number of loans on properties worth less than £175,000 declined by 10%. The number of loans on properties worth more than £175,000 was 19% higher than in 2009.
First-time buyers vs home movers this decade
Last year marked a turning point in the mortgage market, with the restoration of stability at low levels of activity following a period of large falls in lending in the aftermath of the credit crunch. House purchase lending picked up during the year, but was balanced by a continuing drop in remortgaging levels. However, this trend may change in 2011, as borrowers continue to react to the more likely prospect of higher interest rates.