House purchase lending is now 5% weaker than last year and this third monthly fall in a row suggests that the mortgage market is beginning to regress, according to data and research from e.surve chartered surveyors.
It says that the positive effects of Funding for Lending are being outweighed by falling borrower demand and tough lending criteria as potential buyers are sitting tight and waiting for the economy to improve.
The firm’s latest Mortgage Monitor shows that March was the third consecutive month in which house purchase lending has fallen, reversing a trend of five consecutive months of increases in lending between July and December last year. It is the first time since 2008 that house purchase lending has fallen between a February and a March.
‘The mortgage market is beginning to regress. It ended last year very strongly with five consecutive months of increasing house purchase lending and more loans to first time buyers but lending has fallen during every month in 2013. One month could be a blip. Two months could be coincidence. But three consecutive months of falls in house purchase lending indicates the market has gone into reverse gear,’ said Richard Sexton, director of e.surv.
He pointed out that approvals declined for two reasons. ‘First, appetite for moving home has fallen thanks to a combination of high inflation, weak growth of wages, and rising house prices. Even borrowers who qualify for a house purchase loan are thinking twice, and are content to sit tight and wait for the economy to improve. And second, tough lending criteria are preventing many potential borrowers from qualifying for their desired mortgage despite record low rates and a wider choice of mortgages,’ explained Sexton.
The research shows that the fall in lending in March was spread proportionally across all LTV brackets, indicating lending to high LTV borrowers and first time buyers hasn’t fallen at a faster pace than lending to wealthier buyers. Lending to borrowers with a small deposit accounted for 12% of all house purchase loans in March, up from 10% in March last year. And the average LTV rose to 61.4%, the highest for 14 months, reflecting the improvement in the availability of high LTV loans, thanks partly to the Funding for Lending Scheme.
Demand fell considerably among low LTV borrowers in March. Lending to borrowers with a deposit of 40% or more fell to the lowest level since January 2012, indicating wealthier borrowers are content to sit tight and wait for the economy to improve.
‘The economy is finding it tough going. Growth has been non existent, and high inflation and weak wage growth continue to snap at its heels. This has reduced demand, making it harder for high LTV borrowers to build a deposit and meet lending criteria. And it has also encouraged wealthier borrowers to bide their time and wait for the economy to improve,’ said Sexton.
‘These systemic weaknesses in the economy have cancelled out the positive effects of Funding for Lending. FLS has certainly helped, but it is losing the tug of war against high inflation, low wages, low savings rates and rising house prices. The problem is scale. The scheme needs to be beefed up so it has the muscle required to win the fight,’ he pointed out.
‘The biggest roadblock barring the way for would be buyers is tight criteria on mortgages. Although there is a wider range of mortgages on the market, including some of the most tantalising fixed rate deals in history, lots of would be buyers are struggling to meet the criteria needed to get a mortgage. Cheaper rates and a wider choice of mortgages may look positive, but they are irrelevant if lending criteria remain prohibitively tight,’ he added.
As total approvals fell, so too did the number of approvals on typical first time buyer property, that is properties under the value of £125,000. There were 11,568 approvals on properties up to the value of £125,000 in March, down 3% from 11,880 in February, and down 7% from 12,463 in January.
Even London hasn’t been immune to the downturn over the first quarter of this year. Although approvals rose marginally by 0.4% in March, they are 22% lower than last year and far greater than the nationwide fall of 5%.
‘Although house purchase lending has tailed off recently, re-mortgage activity was significantly higher in March than in previous months. More landlords are looking to free up capital to expand their portfolios and take advantage of high buy to let yields, which has led to a surge in remortgaging activity,’ said Sexton.
