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Slight improvement in UK mortgage activity not enough, experts warn

There were 40,900 loans, worth £5.9 billion, advanced for house purchase in April, up from 37,900, worth £5.5 billion, in March and down from 41,900, worth £6 billion, a year earlier, according to the figures released today (Tuesday June 14) by the Council of Mortgage Lenders.

 While this is a further increase compared to earlier in the year, house purchase activity is still below the level seen in April last year and real estate experts point out that without a strong increase in loans the market is still going to stagnate.
The latest figures from the Royal Institute of Chartered Surveyors, also published today, show that agreed sales have fallen by 3.4% in the three months to the end of May. RICS says that concerns over the economy and lack of mortgage finance are depressing the UK residential real estate market.

The CML data shows that mortgage lending fell in April with 24,700 loans advanced, worth £3 billion, compared to 34,100, worth £4.1 billion, in March. This is fractionally higher than April last year.
With remortgage activity currently linked to expectations of interest rate movements, future activity will be subdued, its report says, as an imminent increase in the bank rate is now looking less likely. There was also a fall in remortgage approvals in April so remortgage completions are likely to remain modest in the coming months.
The number of loans to first time buyers increased by 8% in April, from 14,700 worth £1.7 billion in March to 15,800 worth £1.9 billion, but this is way below what analysts believe is necessary to get more people onto the property ladder.

First time buyers borrowed on average 80% of their property’s purchase price in April, more than for most of the last two and a half years, but still well below the 90% that first time buyers typically borrowed before 2008.

Mortgages to home movers also increased in April, with 25,100 advances, worth £4 billion, and an increase of 8% (5% by value) compared to March, but, unlike lending to first time buyers, a fall of 4% (2% by value) compared to a year ago.

‘The market continues on a stable footing and the increase in house purchase lending is a good sign that the stability will continue throughout 2011. However, the economic outlook, coupled with Bank of England subdued approvals data for April, suggests a muted summer for mortgage completions so we do not expect further increases in lending over the coming months,’ said Michael Coogan, CML director general.

According to David Brown, commercial director of LSL Property Services, although any growth in monthly mortgage lending is welcome, a comparison with 2010 shows there is still a long way to go.
‘You still have to jump through a lot of hoops to get a mortgage and deposits for first time buyers need to be more than 50% larger than they were three years ago. Slow mortgage lending continues to hold back the UK’s housing market and the 0.3% annual house price fall reported today by the DCLG is a reminder that the market is still showing no signs of a sustained recovery,’ he said.

‘While the slight improvement in the affordability of first time mortgages gives some encouragement, there is a long way to go before buying property becomes a realistic ambition for large numbers of first time buyers who are struggling to pull together the very large deposits still required in most cases,’ he added.

David Whittaker, managing director of Mortgages For Business, said he expects that activity will remain subdued this year with month-on-month rises and falls being the norm. ‘Until there is a significant sea change in the amount lenders are prepared to issue to borrowers we’re unlikely to see a dramatic recovery in the mortgage market. Lenders and government must come up with a sensible balance of capital requirements and lending targets, if they don’t the market will be stuck in the doldrums for a long time to come,’ he added.