The latest estimates from the Council of Mortgage Lenders indicate that total gross mortgage lending in May increased to £14.7 billion, representing a rise of 21% from £12.2 billion in April and 17% higher than the total of £12.6 billion in May 2012.
CML chief economist Bob Pannell described it as coming against a backdrop of a modestly improving UK economy with a pickup in consumer spending and a recovering housing market.
‘Funding conditions, helped by the funding for lending scheme, continue to look favourable and are supporting more competitive mortgage pricing and availability and a gradual resumption of lenders’ risk appetite,’ he said.
‘While the direction of travel is clear and fits well with the more positive housing surveys from the Royal Institution of Chartered Surveyors and others, our forward estimate does imply somewhat stronger house purchase activity than we had been expecting. This may reflect a degree of pent up sales following the extended spell of poor weather earlier this year,’ he added.
Simon Crone, vice president commercial at Mortgage Insurance Europe at Genworth said that despite the healthy monthly and annual increase there is still a long way to go in terms of recovery.
‘It is certainly heartening that lending activity seems to be on an upward trajectory, but the market is still far from realising its full potential. Hopefully as consumer confidence continues to return, lenders will regain their risk appetite so that the availability of mortgages that require smaller deposits increases,’ he pointed out.
‘After all, first time buyers are the lifeblood of the market and unblocking the pent up hordes of potential homeowners is a sure fire way to ensure lending figures continue to rise. Mortgage insurance remains a viable option for lenders looking to mitigate the risk of lending at higher loan to value amounts and we could see more banks follow the lead of their mutual counterparts in incorporating this into their propositions going forward,’ he added.
Brian Murphy, head of lending at Mortgage Advice Bureau (MAB), expects further improvements. May’s 21% rise in gross mortgage lending coincides with the best five year fixed rates in recent history, so we can expect further improvements as borrowers make the most of the outstanding deals on offer. In over 25 years in the mortgage industry I’ve grown accustomed to seeing five year fixes closer to 5% or 6%, so May’s average of 3.96% is unprecedented,’ he explained.
‘The idea that good rates only come with a higher fee attached is something of a myth in today’s market. In many cases it’s possible to find a great rate while still enjoying a low or nil product fee,’ he added.
David Whittaker, managing director of Mortgages for Business, said the figures show that the mortgage market is recovering. ‘The Funding for Lending scheme has helped clear the credit bottleneck and is allowing banks cheaper access to credit, which they are allowing to flow to borrowers. Rates on first time buyer mortgages are at record lows, and lenders are more willing to lend to high LTV borrowers,’ he said.
‘Criteria have eased, and there are a wider range of mortgages for house purchasers to choose from. Most other areas of the economy haven’t been able to shake off the torpor induced by the financial crisis, but the mortgage market is beginning to and is at the vanguard of the UK’s economic recovery,’ he added.
But he also warned that deposit requirements are still higher than they were prior to the banking crisis, and lenders are reluctant to fling open the doors to high LTV borrowers. ‘Inflation is high, wage growth is low, and savings rates lower still. All those factors will make it hard for the recovery in lending to reach a higher level and get back to where it was prior to 2008,’ he said.
According to Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), the figures are something of a double edged sword. ‘Firstly, with lending volumes up by 21% between April and May, they show mortgage lenders are very much open for business and willing to compete over pricing for higher loan to value (LTV) deals. Despite capital requirements curbing lending, borrowers’ chances of securing a low deposit mortgage are certainly improving,’ he said.
‘But let’s not forget that higher LTV mortgages are of limited use if property is in short supply and house prices are pushed even higher by the imbalance. We can take heart from improving conditions, but now is the time for a proper discussion involving government and industry on the future of housing policy in the UK. Otherwise, we may find a momentum building that slips out of our control,’ he added.
Richard Sexton, director of e.surv chartered surveyors, believes that there is some real energy and ambition in the mortgage market. ‘Despite rising house prices, more buyers are accessing mortgages. Greater lending reflects returning confidence in the market. Even better news is that the increase in lending was powered by an increase in high LTV borrowers. First time buyers in particular, have had a hard run of late. The sum they must save as a deposit to get onto the housing market is often crippling,’ he explained.
‘Building the deposit is made all the more arduous by stubborn inflation, weak wage growth and low savings rates. But high LTV lending is 26% higher than last year. Lenders have been providing more support to high LTV borrowers, by offering a wider range of mortgages, and dropping rates. Schemes such as Help to Buy offer further options. Now is the time for ambitious high LTV borrowers to get on the housing ladder,’ he added.
