There were 56,475 house purchase approvals in July, up 21% from 46,796 in July 2012, making it the strongest July since 2007.
High LTV lending narrowly missed hitting a post financial crisis record. It was 56% higher than last July, with 6,946 loans advanced to borrowers with a deposit of less than 15% during the month, compared to just 4,446 loans in July 2012.
Despite significant house price rises, the sharp improvement in high LTV lending was reflected in the number of loans made on properties up to the value of £125,000, typical first time buyer stock. There were 12,989 loans on these properties in July, up 21% from just £10,763 in July 2012.
But on a monthly basis, house purchase lending declined slightly. It fell 2% from June, from 57,667 approvals, suggesting the recovery is beginning to plateau.
‘Confidence is seeping back into the mortgage market. House purchase lending remains far and away improved compared to last year. High LTV borrowers are enjoying more success in qualifying for house purchase loans, as banks begin to ease lending criteria, and encourage investment in lower equity borrowers,’ said Richard Sexton, director of e.surv chartered surveyors.
‘But there is still a long way to go. The mortgage market wants to run at full tilt, but it is being pegged back by weak wage growth and high inflation, which is preventing more significant increases in first time buyer lending. In July 2007, there were twice as many house purchase loans. Many buyers remain locked in the eternal battle of saving for a deposit. Their wages are growing painfully slowly, and they are losing out in real terms, as inflation remains high,’ he explained.
He also pointed out that higher house prices are lifting homes out of the reach of more first time buyers, a reach that has already been shortened by low savings rates and the high cost of living. The latest house price index from LSL has shown that house prices have reached a new record high, with the average property now costing £232,801.
‘The monthly dip in lending, now the second month of fall, reflects these mounting challenges. Schemes like Funding for Lending and Help to Buy have helped address mortgage accessibility. But the fact is that if people can’t build a deposit, they can’t take advantage of improvements in mortgage availability,’ he added.
The improvement in high LTV lending has been focussed in the North, suggesting the recovery in lending is nationwide, and the north/south divide is narrowing. Some 24% of all house purchase loans in July were to high LTV borrowers in the North East and Cumbria, the highest proportion of any UK region. The North West and Yorkshire followed close behind, with 23% and 20% respectively.
Despite an overall increase in high LTV lending, there remain regions in which it is very tough for high LTV borrowers to access funding. In London and the South East, the focus of the annual increase in lending and the UK region with the highest overall lending, the number of loans approvals to high LTV borrowers remains low. There were 9,178 loans to borrowers in London in July, but less than 3% of these were to high LTV borrowers.
‘The north/sound divide is finally narrowing. Up until now, much of the evidence has pointed in the direction of a mortgage market recovery focussed in the capital and surrounding South East. But our latest research shows that there has been significant improvement in high LTV lending in the North,’ said Sexton.
‘In the North East and Cumbria, just under a quarter of all house purchase approvals were to high LTV borrowers. It reflects the fact that it’s getting easier for first time buyers nationwide to access the mortgages available to them, as banks extend more lending to high LTV borrowers across the country,’ he added.
July signalled one year on from the introduction of the Funding for Lending Scheme (FLS) which has been credited with driving forward much of the increase in lending. In the first year of the scheme, there were a total of 648,000 mortgage approvals, some 5% higher than the year before its introduction, when there were just 614,000. This equated to 34,000 more approvals.
‘Funding for Lending has helped brighten the long term picture. But it is fighting against a tide of problems like high inflation and weak wage growth, which is quashing first time buyer numbers. Interest rates remaining low will help,’ said Sexton.
He also pointed out that with a new direction on interest rate plans being signalled by new Bank of England governor Mark Carney, things should pick up as greater advance knowledge about coming monetary policy will help borrower confidence bounce back.
