UK home lending was broadly flat in January, latest CML data shows

Home buying lending in the UK was flat in January but remortgaging activity was boosted by a plethora of low deals, the latest published figures suggest.

The data from the Council of Mortgage Lenders, now available on an unadjusted basis for the first time, gives a more complete picture as it makes it easier to spot underlying trends, according to Paul Smee, CML director general.

He explained that while the unadjusted data appears to show large falls month on month, stripping out the usual January lull gives a different picture.

‘We see a general picture of flat house purchase lending but a significant uptick in remortgage activity as borrowers continue to seek attractive new deals despite the lower for longer expectations for interest rates,’ Smee said.

On an unadjusted basis, the figures shows that home owners borrowed £8.4 billion for house purchase, down 25% month on month but up 12% year on year. They took out 46,200 loans, down 27% on December but up 5% on January 2015.

First time buyers borrowed £3.3 billion in January, down 27% on December but up 14% on January last year. This totalled 21,400 loans, down 28% month on month but up 6% year on year.

Home movers borrowed £5.1 billion, down 24% on December but up 11% compared to a year ago. This totalled 24,800 loans, down 26% month on month but up 3% on January 2015.

Home owner remortgagors borrowed £5.8 billion, up 35% on December and 32% compared to a year ago. This totalled 33,100 loans, up 28% month on month and 19% compared to a year ago.

Landlords borrowed £3.7 billion in January, up 9% month on month and 42% year on year. This came to 23,100 loans in total, of which 13,400 were for remortgage, up 3% compared to December and up 31% compared to January 2015.

Peter Rollings, chief executive officer of Marsh & Parsons, pointed out that with interest rate rises postponed into next year or beyond, remortgaging activity is going from strength to strength, reaching its highest monthly level for seven years.

‘Landlords are in more of a hurry, and don’t have long left to snap up investment properties before being struck with more debilitating stamp duty. As a result, this storming growth in buy to let borrowing is likely to be short lived, and be balanced out by a more sedate second quarter of the year,’ he said.
‘But Government support schemes have proved a tonic for first time buyers, and this is likely to provide good vitals throughout 2016 as a whole. Existing home owners should be feeling revived too, as house prices show healthy improvements, triggering many to make the plunge and start trading up. It’s supply of homes on the property market that is the fly in the ointment currently, and is the biggest threat to quashing this confidence,’ he added.

David Whittaker, managing director of Mortgages for Businesses, explained that in the buy to let sector lending is expected to slow after the rush to beat the new surcharge stamp duty on additional homes comes into force in February.

‘Given it takes six to eight weeks on average to process a mortgage application, January and early February represented the last chance for those landlords seeking to beat the surcharge. But equally, the strong annual growth in buy to let lending reflects the fact that the sector continues to remain an attractive investment opportunity for those with the patience to wait for steady, long term returns,’ he said.

‘Looking forward, we expect lending to calm in the second quarter of the year once the stamp duty change kicks in and the focus turns to restrictions on buy to let finance costs. It is this, rather than the stamp duty which will really change the way the sector operates, as the Government seeks to foster a more business like tax environment for buy to let,’ he added.

However, Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA) believes that it is self-evident that remortgaging is driving buy to let activity at the moment, with almost 4,000 more landlords motivated to switch their deal in January than take out a new loan to buy property.

He pointed out that remortgaging has risen from 55% of buy to let loans in January 2015 to almost 59% a year later which he says should be no surprise given the changes to tax rules announced in the interim which have prompted many landlords to reassess their finances.
‘The impending stamp duty shake-up is a clear incentive for landlords to seek to complete on any new purchases before April, but the 8% monthly drop in buy to let purchases in January certainly does not look much like a stampede or cause for concern. Either way, these policy changes mean we are in yet another period of adjustment where lending levels are being impacted by a shift from one regime to the next, making it harder to pinpoint what normal activity now looks like,’ he explained.
‘What’s certain is that the UK housing market needs a healthy private rental sector to remain beyond April 2016 if it is to respond to population increases and rising tenant demand. With the consultation on buy to let lending controls closing tomorrow, it seems premature in the extreme for policymakers to take further action that might ultimately weigh down too heavily on this important part of the market,’ he added.

Landlords have been taking full advantage of rock bottom mortgage rates, according to Steve Bolton, founder of Platinum Property Partners. ‘In the short term, stamp duty changes are likely to provide a boost to buy to let lending. However, landlords who aren’t yet nearing completion will find themselves running up against the clock to avoid being stung by a higher bill,’ he said.

‘It makes sense for landlords to minimise their mortgage costs now by swapping to a cheaper deal, as legislative changes on the horizon threaten to make the cost of running a buy to let business much higher,’ he pointed out.

‘The phasing out of tax relief on mortgage interest will lead to some landlords running at a loss, and it’s not just landlords who will suffer: tenants will also be hit by higher rents as landlords struggle to stay profitable. Inevitably some landlords will be forced to leave the sector altogether, further shrinking property supply at a time when more homes are desperately needed,’ he added.

Rishi Passi, chief executive officer of Oblix Capital, also said that the referendum on the UK staying in the European Union in June, along with tax changes could also affect the buy to let lending sector.