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Lending to UK first time buyers increases again, latest CML data shows

This increase, along with growth in lending to home movers, has resulted in a jump in total house purchase lending. Remortgage lending dipped back in June compared to May, although continues to trend above levels earlier this year.
 
The data shows that 25,300 loans were advanced to first time buyers in June, a 30% increase on the 19,400 loans advanced in June last year. Following the strength in first time buyer activity in May and June, quarterly lending to first time buyers was at its highest since 2007.

First time buyers continued to increase the amount they borrowed with an average loan size of £117,000 in June up from £112,500 in May. As a result of this there has been a stronger growth in the value of loans advanced to first time buyers which totalled £3.5 billion, an increase of  9% in value compared to May and 40% on June last year.

The SML said that this is likely to be associated with the growth in house prices in recent months. In June 34% bought a home less than £125,000, down from 37% in May.

While first time buyers borrowed more in June, an increase in income, along with falling interest rates mean that there has been no deterioration in the affordability of these loans as typical first time buyers mortgage payments consumed 19.3% of first time buyers' income and this was unchanged from May.
 
CML figures have previously shown a small increase in the average LTV ratio for loans advanced to first time buyers but the latest figures show this to have dropped back to 80%. However the average for the second quarter, which will be less affected by monthly fluctuations, has increased slightly, up to 81% from 80% in previous quarters.

First time buyers accounted for 46% of all house purchase loans in June, which was up from 44% in May and considerably higher than the 38% seen on average since 2007.

Lending to home movers continued to grow on a year on year basis, albeit at a slower rate than for first-time buyers. Some 30,100 loans were advanced to home movers in June, a 6% increase compared to June last year. The value of these loans totalled £5.1 billion.

For the second quarter of the year overall, 83,500 loans were advanced to home movers which was an increase of 27% on the first quarter of 2013 and up 4% on the second quarter last year.

The house purchase sector continued to support overall gross lending in June and the second quarter as a whole. A total of 151,600 loans was advanced for house purchase in the second quarter, up by 30% compared to the first quarter of 2013 and 17% compared to the same period last year. In June, £8.5 billion worth of loans was advanced which was an increase of 16% compared to June last year.

While remortgage lending dipped in June, growth in the first two months of the quarter resulted in an increase in the second quarter compared to quarter one. Remortgage lending continued to trend above last year’s levels, based on both the second quarter and the June total, although remains subdued compared to historic levels.

The CML report says that recent falls in rates have contributed to a record take up of fixed rate mortgages in June which represents 86% of all mortgages. This is the highest level of fixed rate mortgage uptake at any point for at least 20 years.

It also says that funding conditions have shown improvement, in particular the funding for lending scheme helped stem the upwards pressure on rates seen through the first half of 2012. Rates continued to show a downward movement in June with fixed rates falling to 3.4% on average. This is well below the 4.25% recent peak last August and somewhat below the previous recent low of 3.69% at the end of 2011.

‘First time buyers have become a strong driver in the growth of mortgage lending this year proving that market conditions are favourable for them. With increased interest in home buyers ability to cope with the eventual rise of interest rates, it is particularly reassuring to see borrowers choosing to fix their payments and for longer in record numbers,’ said Paul Smee, director general of the CML.

Brian Murphy, head of lending at the Mortgage Advice Bureau (MAB), welcomed the figures. ‘With another rise in loans to first time buyers in June, this section of the market is looking stronger than it has done for some time. But even though affordability does not appear to have suffered from the recent growth in house prices, this may be because higher earning borrowers have been mostly responsible for the surge in first time buyer activity,’ he explained.

He pointed out that average fixed rates are significantly lower across two, three and five year products than they were this time last year, and the latest data shows average five year fixed rates at 3.83%, the best we have seen in recent memory. ‘The Bank of England has signalled that interest rates are likely to favour mortgage borrowers for the foreseeable future, but with rates this good, fixing still looks like the most appealing option for long term security,’ he added.

‘Many lenders are primed for a busy end to the year as they chase ambitious targets. With new lenders entering the market and plenty of capital from the Funding for Lending Scheme to bring into play, the range of borrowing options is likely to improve even further across the board,’ he concluded.

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