This was in line with expectations and was caused by the distorting effect of the March ending of the stamp duty concession. So it came as no surprise that the largest fall was to first time buyers, with lending at around half the levels of the previous month.
The drop off in activity for first time buyers was seen mainly among properties that would have qualified for the exemption in March so were subject to stamp duty in April. Purchases of properties valued between £125,000 and £250,000 fell by 70% in April compared to March.
In contrast those valued at £125,000 or below, so still exempt from stamp duty, fell by a more modest 11%, while first time buyer purchases for properties over £250,000, so not eligible for the exemption in any case, fell by only 5%.
In total, 12,600 loans were advanced to first time buyers, down by 48% compared to March and 12% compared to April 2011. By value, first time buyers borrowed £1.5 billion, down 52% compared to March and 12% compared to April last year.
The change in the mix of properties bought had knock on effects on first time buyer loan characteristics. The average loan amount fell from £117,000 in March to £98,000 in April and first time buyers typically borrowed 3.12 times their income, down from 3.34 in March. These changes are almost wholly because of the trend in April towards cheaper properties rather than a real improvement in affordability for first time buyers, said the CML.
Lending to home movers also fell. Some 23,400 loans worth £3.8 billion were taken out in April, down by 15%, 14% by value compared to March but an increase of 3% by volume and value compared to April 2011.
Total house purchase lending in April fell from 51,600 loans, worth £7.4 billion, in March to 36,000, worth £5.3 billion, in April. Remortgaging also saw a fall, with £3.1 billion advanced, down 14% compared with March and the lowest monthly total since December 2010.
Nearly all first time buyers currently take out repayment mortgages, 98% in April, unchanged from March. The proportion of home movers and those remortgaging doing so also continues to increase with around 85% of home movers and 82% of remortgagors taking out full capital repayment mortgages.
Reflecting the fact that repayment mortgages are now taken out by the vast majority, CML monthly data will now show the total proportion of income spent on capital and interest payments by those choosing this method, as well as the longstanding affordability measure of the proportion of income spent on interest alone.
In April, first time buyers spent 19.1% of their income on both payments, compared with 12.5% on interest alone, down from 19.8% in March, 13.1% on interest alone.
‘April's figures show the expected effect of the end of the stamp duty concession on UK mortgage lending. Given the economic uncertainty, any significant pick up in lending in the coming months seems unlikely,’ said Paul Smee, CML director general.
‘However, our recent research highlights that over 80% of people still aspire eventually to own their own homes, and long term demand clearly still exists,’ he added.
David Newnes, director of LSL Property Services, owners of Your Move and Reeds Rains said that the figures provide evidence that the government’s failure to extend the stamp duty holiday is at odds with the efforts of mortgage lenders to boost activity in the market.
‘First time buyer activity is a critical starting point for the market as it allows those who wish to make purchases of higher value properties to move up the property chain. By stalling this part of the market, the return of stamp duty has brought an unnecessary and unwelcome distortion to the market,’ he explained.
According to David Whittaker, managing director of Mortgages For Business, it is necessary to look beyond the distortion. ‘The end of the stamp duty holiday had the expected effect, a rush of activity followed by a deep lull and many doomsday analysts will tell you this is a disaster. However, in reality, the lending market is performing better than many will admit,' he said.
'Over the first four months of 2012, the overall number of loans for house purchase is up 15% on the same period last year, and for first time buyers the number of loans is up 20% and these figures include the suppressed activity felt in April. While we’re far from being out of the woods, the market is making steps in the right direction and that mustn’t be lost among the talk of huge monthly falls in activity,’ he added.
And Paul Hunt, managing director of Phoebus Software, pointed out that in any other month, this spectacularly steep drop off in loans to first time buyers would be a cause for panic. But some solace can be taken from the fact these figures clearly represent the trough in demand following the stamp duty rush.
‘While the slump is likely to be temporary, the government’s failure to extend the stamp duty holiday is in stark contrast to mortgage lenders’ progressive attitude to moving the market forward. They have displayed a willingness to lend through the provision of innovative products and a positive approach to borrowers finances which has led to a 5.6% increase in mortgage advances in the 12 months to April,’ he said.
‘The industry must hope the underlying demand for property purchases means aspiring first time buyers will continue to save to overcome the larger fiscal hurdles the government has put in their way,’ he added.
But Nick Hopkinson, director of PPR Estates, is more pessimistic about the mortgage market. 'After the stamp duty rise back to 1% on all property purchases over £125,000 at the end of March, potential first time buyers have resorted to renting due to a mix of job worries, fear that house prices may collapse further and an inability to raise the massive deposits required to get onto the ladder,’ he said.
‘Worryingly, even remortgage numbers are falling again from last year’s lows. This is compelling evidence for anyone who has doubts about the willingness of banks to lend competitively at the moment. Mortgage brokers and financial intermediaries must be really suffering as their main income streams show no sign of recovering from the credit crunch collapse in 2008,’ he explained.
‘House prices will come under increasing downward pressure over the summer as the Euro crisis and wider banking squeeze drag on regardless of any football or Olympics feel good distractions,’ he added.
Peter Rollings, chief executive officer of estate agent Marsh & Parsons believes that the burst of lending in the first part of the year was merely a smokescreen for the underlying weakness of the mortgage market and with the stamp duty deadline rush no longer bolstering figures, lending has fallen back to earth with a thud.
‘As the crisis on the Continent worsens, banks and building societies are looking to consolidate their balance sheets ahead of new lending, and it is first time buyers with small deposits that are bearing the brunt of this conservatism. While there is certainly underlying appetite for house purchase, prospective buyers are not just contending with a chronic lack of mortgage finance, but a difficult labour market and the re-instated stamp duty tax and this is holding back the housing market outside the boundaries of the M25,’ he explained.
‘London’s market remains at odds with the national picture. Cash rich buyers, immune to the effects ailing mortgage market, are looking to protect their wealth from financial turmoil abroad, and the competition means quality homes are selling incredibly rapidly in prime parts of the capital. We’ve already seen prices rise by 7% already this year in sought after parts of London and barring the short term inconvenience the Olympics is likely to cause, this trend will continue,’ he added.
