Home owners in the UK borrowed £10.6 billion for house purchases in July, down 13% month on month and 12% year on year, the latest data from lenders shows.
They took out 58,100 loans, down 14% on June and 13% on July 2015, according to the data from the Council of Mortgage Lenders which is the first full month of figures to be published since the European Union referendum at the end of June.
A breakdown of the figures shows that first time buyers borrowed £4.4 billion, down 19% on June and 4% on July last year. This equated to 28,200 loans, down 17% month on month and 6% year on year.
Home movers borrowed £6.2 billion, down 9% on June and 16% compared to a year ago. This represented 29,900 loans, down 11% month on month and 19% on July 2015.
However, remortgage activity totalled £6 billion, up 7% on June and 20% compared to a year ago. This came to 33,400 loans, up 3% month on month and 10% compared to a year ago.
Landlords borrowed £3 billion, up 3% month on month but down 21% year on year. This came to 18,600 loans in total, up 1% compared to June and down 26% compared to July 2015.
‘These figures cover the first full month of lending following the EU referendum. They show a month on month decline in first time buyer and home mover activity and muted activity on the buy to let market,’ said Paul Smee, director general of the CML.
‘It is hard to determine whether these figures reflect a first uncertain reaction to the referendum vote, or are a sign of a market which was already cooling. It will be quite some time before a full assessment can be made,’ he explained.
‘We do believe that the Buy-to-let lending market is still readjusting after the large level of activity before the changes to stamp duty on second properties in April. Remortgage lending on the other hand has continued to grow, and reacted with a seven year monthly high. Borrowers seem keen to take advantage of the wide range of competitive deals in the market and, following the base rate cut in August, this is likely to continue,’ he added.
He also pointed out that while first time buyer lending was down in July compared to June, the number of loans advanced to first time buyers was higher than any other month this year. Home mover activity was at its third highest monthly level this year by volume and by value in July, after March and June.
On a seasonally adjusted basis, first time buyers and home movers decreased by volume 13% and 7% respectively in July compared to June, but the number of loans to first time buyers increased 8% compared to July last year, while the number of loans to home movers decreased 7% year on year.
Affordability metrics for first time buyers have remained relatively stable, the data also shows. The typical loan size decreased to £133,000 in July from £135,700 in June, while the average household income of borrowers purchasing their first home also decreased slightly from £40,400 in June to £40,100 in July, which meant the income multiple was unchanged at 3.55.
The average amount borrowed by home movers in the UK increased to £171,400 in July from £171,000 in June, and the average household income of a home mover also increased to £55,000 from £54,700. This meant the income multiple went up from 3.26 to 3.29 month on month.
Gross buy to let lending, while lower than levels we saw last year, saw the highest monthly levels of activity by volume and by value since the stamp duty changes on second properties came in on 01 April. Buy to let remortgage lending continues to be the driver, making up two thirds of gross lending.
The figures are evidence that the mortgage market will be hard in the coming months, according to Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA).
He explained that this is due to the triple whammy of stamp duty reform, the Brexit vote and the first base rate change since 2009. ‘All of this, plus the summer holiday season, means we will be waiting for some time to determine the shape of things to come in the second half of the year,’ said Williams.
‘Nevertheless, lending conditions remain favourable with product availability continuing to improve and rates continuing to reach new lows. Remortgage activity in particular is setting the pace with strong competition giving many consumers an incentive to explore lower repayments in the full understanding that rates won’t go much lower,’ he pointed out.
He also said that in the purchase market, first time buyer activity looks on the surface to have held up better than home mover or buy to let when you compare the number of July loans made this year and last.
‘However, there are warning signs for policymakers lurking beneath the surface. Income multiples have crept up and with first time buyers spending less of their household income on repayments, this suggests that higher earners are making headway while others may find themselves locked out,’ said Williams.
‘Today’s average first time buyer is contributing a 15% deposit, but there are serious questions to be asked about whether the looming end of the Help to Buy mortgage guarantee will push this figure up and limit options for those with 5% or 10% deposits. Despite Brexit being a government priority, Westminster cannot afford to put off action to ensure that access to homeownership is supported for the long term. The new Chancellor needs to deliver in his Autumn Statement in November,’ he added.
David Whittaker, managing director of Mortgages for Business, believes that it is too early to say whether July’s fall in lending is due to the EU referendum at the end of June. ‘While there can be little doubt as to the magnitude of result, the reality is, there are too many other factors affecting the wider economy to pin it all on Brexit,’ he said.
‘While total mortgage lending fell between June and July, remortgaging and buy to let lending increased. Landlords are continuing to return to the market as they become more familiar with the changing tax environment and have factored this into their financial planning. Continued low mortgage rates have also spurred them on, and the recent cut in Bank Rate, will no doubt encourage them further not only to remortgage but also to expand their portfolios,’ he explained.
‘We are seeing an increase in the number of landlords using corporate vehicles in order to invest in the property market, and we expect further increases as more investors seek to maximise their returns in the wake of tax relief restrictions on personal borrowing. There are still strong returns to be had in the property market for intelligent investors, especially compared to equities, bonds and savings, which have performed poorly since the referendum,’ he added.
