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Lending remains stable, but funding markets improve


Published: 12 July 2011 | Author: Bernard Clarke

Lending both for house purchase and remortgaging eased upwards in May, with the market showing further signs of stabilising.

In the months ahead, seasonal factors are likely to continue to nudge up lending for house purchase. But there is no sign of any significant change of direction for the mortgage market. Stable conditions are expected to continue for the rest of the year.

More encouragingly, the outlook for funding markets looks more positive, with recent securitisation deals suggesting confidence is returning as investors re-gain their appetite to invest in bonds backed by mortgage assets.

In May, there were 41,500 loans for house purchase, worth £5.9 billion, up from 40,800, also with a value of £5.9 billion, in April. But house purchase activity was still below May last year, when there were 43,800 advances, worth £6.3 billion.

Remortgaging also picked up in May. There were 29,000 loans for remortgaging in the month, worth £3.6 billion, compared to 24,700, worth £3 billion, in April. The value of remortgaging was higher than in May last year. But remortgaging remains below the recent peak of £4.1 billion in March this year.

Most borrowers (62%) are continuing to opt for fixed rate mortgages, apparently preferring the certainty of future payments. This represents a significant change from last May, when fixed rates accounted for 46% of loans, and tracker mortgages for 36%.

Lending to first-time buyers was virtually unchanged in May, with 15,900 loans advanced, compared to 15,800 in April. The value of these loans remained unchanged at £1.9 billion. Compared to May last year, first-time buyer activity has fallen by 2.5% in volume (from 16,300 loans) and 5% in value (from £2 billion).

First-time buyers borrowed on average 80% of their property’s value in May, with affordability continuing to ease a little from the deposits of 75% typically required in 2009 and the early months of 2010.

The number of mortgages advanced to home movers edged up in May to 25,600 from 25,000 in April, while the value of these loans stayed the same, at £4 billion. There were larger year-on-year falls in lending to this group than in the first-time buyer sector, down by 7% in volume compared to May last year.