The latest e.surv mortgage monitor, published Friday 12th October, provides a review of the mortgage market.
- House purchase loans fall to 47,603, 3rd worst September on record
- Tightening lending criteria drives fall in high LTV lending
- Average loan-to-value falls to lowest since January 2011
- Less than 5,000 purchase loans granted to buyers with a deposit of under 15%
- But lenders say FLS will boost lending significantly in Q4
House purchase loans in September fell 7% year-on-year to 47,603 – the third worst September since records began in 1993 – as improved credit availability for lenders failed to translate into an improvement in lending, according to research released this morning
The latest Mortgage Monitor, produced by e.surv chartered surveyors, found the fall in loans was steepest among high LTV borrowers – typically first-time buyers. Loans for house purchase fell across all LTV bands and house price brackets, suggesting the government’s Funding for Lending Scheme (FLS) is yet to make a telling impact on the mortgage market.
The average LTV on a house purchase loan in September fell to 59%, its lowest since last January, reflecting the sharp fall in loans to borrowers with small deposits. Just 1 in 10 of all house purchase loans went to borrowers with an LTV of 85% or over, continuing a three month trend. The number of loans to borrowers with a deposit of less than 15% has now fallen below 5,000 for the last three months. The last time that happened was between May and July last year.
Richard Sexton, business development director of e.surv, explains: “September isn’t just a one off. The mortgage market has been struggling since early June, and is considerably weaker than it was this time last year. The period between August 2011 and May this year marked a real upturn in lending. But that fillip planted false hope. Since then, the effects of the double dip recession have sapped the confidence lenders have in the economy. That, combined with a squeeze on the funding lenders get from the money markets, has dragged down lending. Criteria on high LTV mortgages have become more restrictive, and this has choked off first-time buyer lending.”
Despite 18% more mortgages with an LTV of above 85% on offer since April 2011, and lenders reporting an improvement in mortgage credit over Q3, fewer borrowers have been able to access high LTV loans because of toughening lending criteria. The apparent contradiction between more LTV mortgage products on the market and a fall in lending suggests lenders are not yet confident enough in the economy to increase lending to borrowers with low deposits and low incomes significantly.
September marks the fourth consecutive month of a year-on-year fall in house purchase lending, suggesting the market is significantly weaker than it was this time last year. Lending in Q3 was 7% lower than the equivalent period last year, with 11,019 fewer house purchase loans. To illustrate the extent of the decline, house purchase lending in September is 10% lower than September 2009 – when the market was still in the grips of the financial crisis.
Positive Signs Ahead
The picture was brighter on a month-on-month basis, with house purchase loans in September falling by a marginal 0.1% compared to August.
Richard Sexton explains: “Analysts have been quick to criticise the Funding for Lending Scheme after an inauspicious start in August, but it will prove to be a slow-burn. The Bank of England’s latest credit conditions survey suggests an improvement in house purchase lending may be on the horizon. Lenders told the Bank the availability of secured credit will increase ‘significantly’ over the fourth quarter, and specifically referenced the Funding for Lending Scheme as a key driving the improvement. Lenders say it has helped increased their mortgage funds by 36%, the biggest increase since records began. If it is a slow-burn, FLS will begin to translate into higher mortgage lending in the fourth quarter, which will help more first time buyers get a foot on the ladder.”