Bob Pannell, CML chief economist said that this is a normal seasonal trend, with August typically less strong for mortgage completions and the underlying picture is of improvement in lending levels on a year by year basis.
‘Seasonal factors pushed all categories of lending lower in August compared to July. However, the mortgage market continues to see year on year growth, and we expect this to continue over the coming months,’ he added.
A breakdown of the figures shows that lending fell by volume and by value for the first time since April this year. However, this was the third consecutive month that lending for house purchase increased year on year by volume and by value.
Pannell pointed out that it was the highest house purchase lending activity level for the month of August since August 2007. However, volume levels this month were still only 60% of what they were in August 2007.
Overall in August, home owner loans for house purchase accounted for 57% of gross lending, the same as in July, while remortgage activity accounted for 21% compared to 24% in July.
Home owner loans as a share of gross lending have increased since the New Year while remortgage activity has edged down. Buy to let lending as a proportion of total gross lending remained at 17%, a consistent level since the beginning of the year, but up from 13% in the same period last year.
First time buyers accounted for 44% of total house purchase lending volumes, a much higher proportion than pre-crisis levels of 30% of the number of loans for house purchase and it was the highest monthly first time buyer lending level by volume and by value in the month of August since 2007, but the number of loans was only 78% of the August 2007 levels.
The proportion of first time buyer gross household monthly income in August to service capital and interest payments stayed the same month on month at 18.5%, but remained considerably lower than 19.7% in August last year, and much lower than the most recent high of 24.8% in December 2007.
This was the highest home mover lending level by volume and by value in the month of August since 2007, although this month's volume levels are still only 51% of the volume levels in August 2007.
Home movers spent 18.1% of their monthly gross household income to pay capital and interest repayments, up slightly on last month but down on the same period last year. Like first time buyers, this is still much lower than the most recent peak of 23.8% in December 2007.
Remortgage activity dropped month on month in August 17% by volume and 18% by value compared to July. However, in parallel to house purchase activity, there was a year on year increase compared to August 2014 by volume and by value, up 11% and 20% respectively.
Buy to let lending for house purchase has showed stronger year on year growth than home owner loans for house purchase for most of the year, which in part is a market recovery response as buy to let lending declined more than home owner lending during the downturn.
While loans to home owners for house purchase declined by 50% in volume terms from 2007 to 2009, buy to let loans for house purchase declined 71% in the same period. Buy to let continues to represent 17% of gross lending in August, a proportion that has remained relatively consistent since the beginning of the year.
Overall, buy to let lending decreased in August compared to July, but saw substantial year on year increases by volume and value compared to August 2014.
Steve Bolton, chairman of Platinum Property Partners, agreed that the fall is part of a seasonal trend and he pointed out that the buy to let market suffered a far greater decline in lending during the recent economic downturn than the residential market, but so far this year has shown consistently stronger annual growth.
‘Bank of England data shows that lenders reported a large increase in demand for buy to let loans over the last quarter. Many landlords have been able to capitalise on low mortgage rates and improved credit availability to build their portfolios and tap into the strong returns that the private rental sector can offer,’ he said.
‘However, the data also shows that lenders expect demand to fall significantly over the next three months. While this mirrors the slowdown observed in the fourth quarter of 2014, and is therefore partly due to seasonal factors, this may be more pronounced due to mortgage tax relief changes looming on the horizon,’ he explained.
‘Certain types of landlords, including those with single occupancy properties and large amounts of mortgage debt, will be hit hard by the changes and investment in the sector could become less attractive. Others will be forced to pass costs on to tenants, raising rents and making it harder for them to become home owners,’ he added.
