Strong momentum in UK mortgage market with more loans for first time buyers

There are encouraging signs for the continued recovery in the UK housing market as the latest figures from the Council of Mortgage Lenders show that in December 2013 loans to first time buyers were up 37% year on year.

First time buyers are crucial to the recovery as they help other buyers to move up the housing ladder. Indeed, loans to home movers in the same month were up 19% year on year and loans for remortgages were up 16% year on year.

Overall the CML report says that there were strong home owner house purchase numbers through 2013 and lending to first time buyers continued to be a key driver in the closing quarter of 2013.

Buy to let lending also finished strongly in the last quarter of 2013, up 20% compared to the last quarter of 2012, in addition, buy to let loans for house purchase increased 18.6% in 2013 compared to 2012.

‘In 2013, there has been a resurgence in the mortgage market with year on year growth for all types of borrower. First time buyers were an especially important factor in driving the market forward in 2013 as improved economic conditions, as well as the introduction of government schemes like Help to Buy, have given the opportunity for them to enter the market and become home owners,’ said CML director general Paul Smee.

‘The consistent upward lending trend seen throughout 2013 would suggest relative optimism going forward. But there are challenges ahead, not least in implementing the Mortgage Market Review regulation in April and in ensuring that there is no suggestion of a property bubble and all this will be key to determining how the market will perform in 2014,’ he added.

Reaction from the property finance industry has been extremely positive. ‘First time buyers have entered 2014 with an extraordinary momentum, one not seen for seven years. And every indication is a further acceleration in these first few months of the New Year,’ said David Brown, commercial director of LSL Property Services.

However, he added that it is important to remember that property is still growing less affordable in terms of wages. ‘For the time being a far healthier mortgage market has pulled out all the stops, but the next stage will be when earnings rather than mortgages can make homes more affordable,’ he explained.

‘In the meantime renting is often more realistic on a monthly basis.  Investment by landlords has brought average rent rises down to levels comparable with the pace of wider inflation, supported by solid progress in buy to let lending,’ he said.

According to Paul Hunt, managing director of Phoebus Software, compared to the difficult lending conditions a year ago, the mortgage market today is almost unrecognisable. ‘Record low interest rates have sent ripples of fluidity throughout the market and unleashed a barrage of first time buyers. It’s not the just the sheer scale of the recovery that is astonishing, but also the speed at which it is accelerating,’ he said.

‘In fact, not only are first-time buyer numbers up. House purchase lending is inching up annually, along with increased high LTV lending and remortgaging levels are up annually which is encouraging. Growth in the property market has been supported by the government’s Help to Buy scheme, which has kick started the market from the bottom tier. It’s enabling thousands more people to realise their dream of homeownership,’ he explained.

He also pointed out that now rates are cheap there’s a greater array of high loan to value mortgages available. ‘Lenders have been proactive in their approach, by lending to a range of buyers including those with small deposits, by promoting a greater product choice. The signs show the mortgage market has turned a corner, having found a way to substantially boost activity in the property market,’ he added.

Meanwhile, Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), said that there is currently no tangible cause for concern that the mortgage market is racing out of control.

‘Buyers’ pessimism during the downturn has largely been shaken off and the outlook for 2014 is much more positive, but we are only just setting out on the path to recovery. The first time buyer market has long needed urgent attention, so it is encouraging that numbers continued to rise in December,’ he pointed out.

He believes that lending through the Help to Buy mortgage guarantee scheme will provide an even stronger kick and reduce the pressure on borrowers to source a sizable deposit but he also pointed out that he thinks growth will be relatively modest at best and still leaves the market a long way from normal.

‘Pent up demand from first time buyers is one of the key factors that makes a long term, sustainable recovery possible. The outlook is upbeat for 2014/2015, but we need a careful balance of lending activity, house building and regulation to remain on track,’ he added.

The recovery in the property market has been exceptional, according to David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains. ‘With rocketing numbers of first time buyers confidence is returning. Thousands of new buyers are making a comeback now that the property market is no longer beleaguered by the financial crisis. In Your Move and Reeds Rains branches across the country buyer demand has shot up and the market is buzzing,’ he explained.

‘In the space of 12 months phenomenal progress has been made, as house purchase lending is up, along with increased high LTV lending, buy to let lending and remortgaging levels all up. However it is the pace of the resurgence in buyer activity in the past six months that stands out from the pack,’ he said.

‘Government schemes have been key in allowing first time buyers to realise their dreams of home ownership. Cheaper rates and more high loan to value mortgages on offer, has meant that lenders are much more willing to offer mortgages to buyers with smaller deposits,’ he added.

But he pointed out that pressure is still mounting on household finances and saving for a deposit will always be a Herculean task for a vast majority of hard working young people. Many must contend with the rising cost of living, low savings rates and sluggish wage growth,’ he said.

‘Yet more young buyers are starting to get a foot in after years of knocking on the door. The winds are changing and as the jobs market continues to improve along with the wider economy, hopes are raised that the government will focus on more house building which will enable the recovery to continue at a healthy pace,’ he concluded.