UK home lending up as experts declare mortgage market is now healthy

The mortgage industry in the UK in June was driven primarily by lending for homes rather than remortgages with volumes up by 6%, according to the latest report from the Council of Mortgage lenders.

Total gross lending reached £17.9 billion, up 20% up on June last year, according to the Bank of England and in the latest quarter, gross lending totalled £51.4 billion, up 11% on the first quarter, and 23% on the second quarter of 2014.

The CML analysis shows that there were 28,600 first time buyer loans in June, some 7% more than in May, and 19% more than in June 2013 and by value, there was £4.2 billion of lending to first time buyers , up 11% on May and 27% higher than June 2013.

Lending to home movers also grew, but more slowly. In June, the number of loans to movers was 31,900, 4% up on the previous month and 11% on June last year while by value, lending to home movers was £5.9 billion, 5% up on May and 23% up on June last year.

However, remortgage lending remains muted compared with both first time buyer and home mover lending. The number of remortgages in June was 1% up on May but 8% down on June last year, although the value at £3.7 billion was up 6% on both.

The data also show that buy to let lending grew 5% over the month to £2.2 billion in June, though the number of loans was the same as May at 15,600. Growth was strong compared with buy to let lending in June last year, 38% up by value and 23% by number.

Paul Smee, director general of the CML, said that for the second month running since new Financial Credit Authority rules took effect, lending characteristics remain similar to the market beforehand.

‘We now feel confident that, as we would hope, the new MMR lending rules effect is more gentle dampener than hard brake. As we recently suggested in our revised forecasts, lending levels should continue to increase modestly over the course of the year, driven mostly by house purchase but with remortgaging also recovering,’ he explained.

According to David Brown, commercial director of LSL Property Services, all systems are starting to tick over more normally and the big questions are now about speed and capacity for new home owners.

‘Moderating price rises are a sign of steadying confidence, the equivalent of winding down the engines after take-off.  And recent flows of first time buyers are a sign of making real headway. Sellers are finding quality buyers more quickly, and transactions volumes are growing,’ he said.

‘But to get the dream of homeownership truly airborne, we need more homes. Building levels are growing rapidly, and this will need to carry on indefinitely.  If so, the house purchase market could one day see affordability improve consistently, as we’ve seen with the private rented sector. But in the meantime, below inflation rent rises, thanks to solid buy to let activity, will be a vital alternative for millions of households,’ he added.

Richard Sexton, director of e.surv chartered surveyors, believes that steadily growing first time buyer demand is bolstering the housing market and lifting lending levels. ‘Interest rates remain low, allowing first timers to enjoy cheaper repayments and lock into affordable fixed rate deals. And banks are offering a larger array of deals to support borrowers struggling to put together a large deposit to get onto the housing ladder,’ he said.

‘One in five home loans were to high loan to value borrowers in June, compared to one in nine 12 months before, as the first time buyer effect grows in strength. But this is a signal of increasing lender confidence rather than a cause for concern,’ he explained.

‘Before the financial crash, there were four times as many high LTV loans as there are now.  And the regulations implemented in April ensure borrowers’ finances are put through their paces before any loan is offered, making sure they will withstand the eventual hike in the base rate. The bounce back in home lending shows that the temporary bottleneck caused by MMR has now been alleviated, and the market has returned to steady, healthy home lending volumes,’ he added.