In May, house purchase lending increased by 36% compared to April and 29% compared to last May. The number of loans also increased, by 33% from April and by 24% from a year ago.
Remortgage lending also increased in May with £3.5 billion advanced for remortgage. This was up from £3.1 billion in April but down from £3.8 billion 12 months ago when there was a greater expectation of interest rate rises.
First time buyer activity bounced back following the volatility of March and April. Some 18,100 loans, worth £2.3 billion, were advanced to first time buyers in May, up from 12,700, worth £1.5 billion, in April.
This may be a 43% rise from April but, following the distorting effects of the end of the stamp duty concession, this returns first time buyer lending back to a similar level seen in the second half of 2011.
The CML said that the characteristics of first time buyer loans began to return to normal after March and April’s stamp duty effect. First time buyers on average took out a loan of £104,000 in May, up from £97,750 in April. They also borrowed 3.21 times their income, up from 3.12 in April and they paid 19.6% of their income in capital and interest payments, up from 19.1%.
All of these May figures are more in line with the typical experience over the last year. The proportion of first time buyers buying properties valued at between £125,000 and £250,000 rose from 37% in April to 44% in May, but was not quite back at the norm of around 50% seen since 2007.
Lending to home movers also increased with 30,200 loans taken out, worth £4.9 billion. This was up 29% by number and value compared to April and up 25% from May 2011.
Repayment loans continue to dominate within all groups. Some 98% of loans taken out by first time buyers were on a capital repayment basis, unchanged since March, 87% of home movers took this option, up from 85% in April and 82% of those remortgaging also did, unchanged since April.
‘It is positive news for the market that the slump following the end of the stamp duty concession seems to have been short lived. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year,’ said CML director general Paul Smee.
‘However, the problems in the Eurozone have not gone away. Economic uncertainty could affect both the supply of mortgage lending and consumer confidence and we still anticipate a challenging lending environment for the rest of the year,’ he added.
David Brown, commercial director of LSL Property Services reckons that the figures should be taken with a pinch of salt. ‘In reality, we are witnessing a return to the level of mortgage lending seen before the rush to beat the end of the stamp duty tax concession, rather than the start of a sustained improvement in the number of first time buyers able to leave the private rented sector,’ he said.
‘Lenders still face a challenging environment as the eurozone crisis rumbles on, and unless the funding for lending scheme proves to be an unqualified success, house purchase lending figures are unlikely to return to anything like their pre crunch levels,’ he added.
According to Paul Hunt, managing director of Phoebus Software, the figures reassuring as they indicate that the subdued level was nothing more than a blip after disruptive effects of the end of the stamp duty holiday.
‘The revival in first time buyer numbers in May demonstrates not only the underlying buyer demand, but that lenders have pushed the market forward to unlock this demand in spite of being buffeted by the impact of the ongoing eurozone crisis. Further relief for banks and building societies may be found in the new funding for lending scheme, which could provide lenders with the means to drive growth in mortgage lending despite the wider economic climate as the year progresses,’ he explained.
Nick Hopkinson, director of PPR Estates, does not think there is real market growth. ‘The volatility of the monthly mortgage stats over the last quarter remains heavily influenced by the stamp duty increases at the end of April. When combined with the long, three to five month lead time it is currently taking to complete a typical property transaction, this makes comparing month on month, and comparing with May last year, disingenuous at best in terms of claiming real market growth,’ he said.
‘The average monthly gross lending figure over the last three months, according to the CML records, is only £11.5 billion. This is down by 3% on the same period last year and significantly less than half the volumes of lending we were seeing pre-credit crunch. Removing the spin, this is a much closer reflection of the struggling property and mortgage market that we are likely to see for the remainder of 2012 and beyond, particularly while the credit crunch and wider recession remain fundamentally unresolved,’ he added.
And Peter Rollings, chief executive officer of estate agent Marsh & Parsons, pointed out that a longer term weakness in the mortgage market remains. ‘It’s still incredibly tough out there for first time buyers looking to secure a big enough mortgage to purchase their first home, and the housing market is being supported by cash buyers and the equity rich, especially in the capital where prices are in a league of their own,’ he said.
‘While there is still strong appetite from new buyers eager to leave the increasingly expensive private rented sector, lenders’ ability to match this demand is being undermined by the impact of the eurozone crisis. Unless the funding for lending scheme proves to be a significant success, the improvement seen in May is in danger of being just a flash in the pan,’ he added.
