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October saw expected decline in mortgage lending

Published: 10 December 2010

An expected decline in mortgage lending towards the end of the year has now become apparent, data released by the Council of Mortgage lenders shows. Lending for both house purchase and remortgaging were affected by a lull in activity in October. There were 46,000 loans for house purchase (worth £6.7 billion), down 4% in number and 6% by value from September. The total was 16% lower (12% by value) than in October 2009, but lending numbers in the final quarter of 2009 were boosted as buyers brought forward transactions to take advantage of the stamp duty holiday.

Remortgaging showed a similar pattern, with 26,000 loans (worth £3.1 billion) advanced in October, down 9% (11% by value) from September, and 21% lower (24% by value) than in October 2009.

Table 1: 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
 
October 2010 46,000 6,700 26,000 3,100
Change from September 2010 -4% -6% -9% -11%
Change from October 2009 -16% -12% -21% -24%

There were 17,000 loans to first-time buyers in October, worth £2 billion, a decrease of 5% by volume and 9% by value from September, and 19% by volume and 17% by value on a year ago. Home movers were similarly affected, with the 29,400 loans (worth £4.7 billion) advanced, representing a 3% drop by volume (6% by value) from September, and a 14% reduction by volume (10% by value), compared to October 2009.  

Table 2: 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

October 2010 17,000 2,000 80% 3.19 13.3%
Change from September 2010 -5% -9% 76% 3.26 13.4%
Change from October 2009 -19% -17% 75% 3.16 15.1%


Loan-to-value ratios appear to have eased in October. On average, first-time buyers borrowed 80% of the property's value in October, up from 76% in September. But the average income multiple to a first-time buyer declined to 3.19 from 3.26 in September. This is partly explained by the recent fall in house prices leading to lower loan amounts being advanced for house purchase. The same applied to movers. The average loan-to-value for movers was 69%, up from 67% in September, while the average income multiple was 2.84, down from 2.89 in September.

Table 3: 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

October 2010

29,400

4,700

69%

2.84

9.7%

Change from September 2010

-3%

-6%

67%

2.89

9.8%

Change from October 2009

-14%

-10%

68%

2.80

11.1%

The take-up of repayment mortgages in October was the highest in more than five years for both home-buyers and those remortgaging. 93% of first-time buyers took out a repayment mortgage in October, the highest proportion since records began in 1974, showing a clear shift away from a pre-2007 norm of around 30% of first-time buyers opting for interest-only mortgages. This shift shows lenders have been adjusting their loan criteria in anticipation of possible regulatory changes, and a recognition that repayment mortgages may be in the best interests of less experienced borrowers such as first-time buyers.

Michael Coogan, director general of the CML, commented:

“With 2009 lending levels artificially inflated by the end of the stamp duty holiday, we expected to see a decline in lending year-on-year, so today’s figures are not surprising. Consumer confidence has also been affected by October's spending review, despite the relative affordability of monthly mortgage payments, and so a stable but small lending market will continue for some time to come."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 94% of all residential mortgage lending in the UK. There are 11.4 million mortgages in the UK, with loans worth over £1.2 trillion.

2. Source: CML/Banksearch.

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 November RMS data will be released on Friday 14 January 2011.

5. New reporting arrangements for our Regulated Mortgage Survey will take effect in January 2011. As a result of this, next month’s figures, including all historic data back to April 2005, will be based on a new version of the dataset, and may show revisions over this period.

 

 

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