A total of 216,200 first time buyers became home owners in 2012, the first time the annual total has exceeded 200,000 since 2007, and a year on year rise of 12% on 2011 when 193,000 loans were advanced.
However, on a monthly basis, lending to first time buyers, home movers and remortgage lending all eased in December, but the CML said that this reflects the usual seasonal factors.
A total of 19,100 loans were advanced to first time buyers in December, a 12% drop compared to November but up by 3% on the same period in 2011. By value, loans to first time buyers totalled £2.4 million, an 11% fall on the previous month.
The fourth quarter total, which is less affected by noise and seasonal trends than the monthly figures, showed that lending to first time buyers continued to strengthen. There were 60,500 loans advanced in the last quarter of 2012, worth £7.6 billion, an 8% increase from the third quarter and up by 14% compared to the fourth quarter of 2011.
In the fourth quarter, first time buyers also accounted for 42% of all house purchase lending, above the 38% typically seen.
There was also a modest but discernible increase in lending at higher loan to value ratios in the last quarter. While the average loan to value ratio stayed at 80%, where it has been for two years, the CML says this masks some encouraging movement in higher loan to value lending. For example, one in 40 first time buyers took out a 95% mortgage compared with less than one in 100 a year earlier. And around one in 5 first time buyers borrowed 90% or more.
As with first time buyer lending, lending to home movers dipped in December. There were 25,900 loans advanced to home movers in December, worth £4.3 billion, a 15% fall compared to the previous month and a 9% decrease on December 2011. By value, lending to home movers fell by 12% compared to November.
In the fourth quarter, home mover lending fell, suggesting that the drop in December may not have been entirely due to seasonal factors. In the fourth quarter, a total of 84,900 loans were advanced to home movers, down by 3% on the previous quarter. Lending to home movers increased year-on-year, however, rising by 3% compared to 2011.
Reflecting the fall in lending to first time buyers and home movers overall, house purchase activity dipped in December. A total of 45,000 loans, worth £6.7 billion, were advanced in the last month of the year, down by 13% compared to November and by 4% on December 2011.
In the fourth quarter, meanwhile, the number of loans advanced increased compared to both the third quarter and the same period in 2011. There were 145,400 loans advanced, up from 143,500 in the third quarter.
Despite the fall in house purchase lending at the very end of the year, strong month on month increases throughout much of the year led to a 6% (7% by value) increase in house purchase lending in 2012 compared to 2011. A total of 540,200 loans were advanced worth £80.9 billion, the largest annual total since 2007.
Following subdued remortgage lending throughout 2012, there was a 13% fall in 2012 overall. This pattern continued in December when the value of remortgage lending at £2.8 billion was 18% lower than the previous month and down by 22% compared to the same period in 2011. However, there was a 5% increase in the fourth quarter total when compared to the previous quarter.
The improvement in funding conditions, and in particular the Funding for Lending scheme (FLS) have stemmed the upwards pressure on interest rates seen through the first half of the year, the CML also says.
This is particularly true for fixed rate loans, the rates on which peaked at 4.25% on average in August, coincidentally when FLS was launched, and have subsequently fallen to 3.84%. Fixed rate loans became increasingly popular throughout 2012 and overall 69% of mortgages in 2012 were advanced on a fixed rate, up from 62% in 2011 and the largest proportion since 2007. This preference for fixed monthly payments was prevalent among first time buyers, 83% of whom opted for a fixed rate loan in 2012.
‘Despite the seasonal dip in lending that we normally see in December, the underlying trend for year on year increases in house purchase activity continued in 2012,’ said CML director general Paul Smee.
‘First time buyers, in particular, have benefitted from the effects of better funding conditions and the Funding for Lending scheme, with the number of new people moving into home-ownership in 2012 reaching the highest level for five years. This, along with other factors, confirms that lenders really are open for business,’ he added.
Peter Williams, executive director of Intermediary Mortgage Lenders Association, said that the figures are especially welcome given the increase in high loan to value lending to first time buyers.
‘With one in 40 taking out 95% mortgages, compared with less than one in 100 a year ago, it is clear that lenders’ confidence in market conditions is returning. The impact of the Funding for Lending scheme is not only boosting volumes and lowering pricing, but also encouraging lenders to consider higher levels of risk in order to help more borrowers onto the property ladder,’ he said.
‘Already one in five first time buyers are borrowing 90% or more, and our latest survey of intermediary lenders showed that the majority expect lending to increase in the 90 to 94% LTV range during 2013. Despite the slump in remortgaging activity last year, the 5% increase in the final quarter also shows this area of the market is primed for growth,’ he pointed out.
‘Favourable borrowing rates are equally appealing whether you are looking to buy a home or remortgage your existing property, which explains why IMLA’s latest survey of mortgage brokers shows confidence in the growth of remortgage business has risen noticeably over the last year,’ he added.
Peter Rollings, chief executive officer of estate agent Marsh & Parsons, believes that the Funding for Lending scheme has rekindled the mortgage market, and the freeze on lending is starting to thaw. ‘But the most crucial development towards returning to a healthier level of house sales is that it is fanning the flames of the first time buyer market. Not only have rates plummeted, but an increasing number of new buyers are able to access cheaper finance at higher LTVs,’ he explained.
‘Nearly one fifth more first time buyers were able to get onto the property ladder in December compared to two years ago and if this trend persists, it will help unfreeze property chains, allowing moves higher up the market. Lenders seem to have a renewed confidence in the housing market, and if they continue to increase their commitment, 2013 will be a real year of progress for prospective home buyers,’ he added.
for Richard Sexton, director of e.surv chartered surveyors, it is the most encouraging sign for the mortgage market since the financial crisis. ‘After an inauspicious start last autumn, Funding for Lending has come good. It has flooded lenders’ balance sheets with cheaper funds, which has encouraged them to reduce mortgage rates to record lows and roll out a much wider range of mortgages for high loan to value borrowers. It is helping clear the log jam in the first time buyer market,’ he said.
‘The hope now is that the improvement isn’t just a flash in the pan. There are plenty of reasons to believe it won’t be. Funding is cheaper, borrower finances are better and the Eurozone crisis lies dormant. All of this bodes well for the rest of the year. Lenders are more confident, and have been emboldened by Funding for Lending and by the relaxation of the speed at which they have to construct capital buffers,’ he pointed out.
