Lending for UK buyers sees growth, especially for first time buyers

House purchase lending in the UK increased by 9% in July compared to the same time last year with the economic outlook allowing more people to enter the property market, according to the latest data.

The figures from the Council of Mortgage Lenders show that first time buyers saw a month on month increase by volume and by value in activity compared to June and a year on year rise compared to July 2014.

Home mover lending saw larger monthly and annual increases than first time buyers by volume and by value but home owner remortgage activity saw a slight dip month on month but substantial increases when compared to the same month in 2014. 

Buy to let continues to grow year on year and month on month, mainly driven by buy to let remortgage activity, the CML data also shows.

‘The market has shown steady growth in house purchase and buy-to-let over the past few months with general improvements in economic factors across the UK allowing for more people to enter the property market,’ said Paul Smee, director general of the CML.

‘This positive direction of travel going into the autumn months reinforces our recent revised forecasts that lending levels should continue to grow gradually over the rest of the year after a subdued beginning of the year,’ he added.

House purchase lending in the UK saw its third consecutive month on month growth by volume and by value in July. This was also the second month that volumes and values increased compared to the same month in 2014.

As previously reported, UK gross lending in July totalled £21.7 billion, up 8% on June and 12% up on July last year.  

Overall in July, the value of home owner loans for house purchase accounted for 56% of gross lending, while remortgage activity accounted for 24%. The rise in the number of loans for house purchase in July was driven by both first time buyers and home movers.

However, the increase in volume and value terms for home movers was much stronger than for first time buyers. This was the highest monthly lending level by volume since November 2007, and by value the highest monthly level since October 2007. 

Nevertheless, first time buyers took up 45% of total house purchase lending, which continues to make up a larger proportion of activity than pre-crisis levels when it made up as little as 30% of the number of loans for house purchases. Buy to let as a proportion of total lending was 18% in July.

It was the highest monthly first time buyer lending level by volume and value since August 2007. The proportion of first time buyer gross household monthly income in July to service the capital and interest rate payments of their mortgage rose slightly from 18.3% in June to 18.5%. This is still lower than in July 2014 when it was 19.5%, and much lower than the most recent high of 24.8% in December 2007.

It was also the highest monthly home mover lending level by volume since December 2009, and by value the highest monthly level since November 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 23.7% in March 2008.

After the sudden sharp rise in June in remortgage activity, remortgage activity settled slightly down 6% by volume and 4% by value in July, but there was still a substantial increase 26% by volume and 34% by value on July 2014.

Buy to let lending for house purchase has showed stronger growth than home owner loans for house purchase for most of the year, which in part a market recovery response buy to let lending declined more than home owner loans 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 represented 18% of gross lending in July.

Overall, buy to let lending rose sharply in July, increasing both month on month and year on year by volume and by value for the third consecutive month in a row. While buy to let house purchase rose significantly, these increases are driven more by strong buy to let remortgage activity since the beginning of the year.

Steve Bolton, chairman of Platinum Property Partners (PPP), pointed out that it is clear that buy to let has been the best performing area of the mortgage market so far this year, with strong annual growth both in the volume and value of loans. 

‘Many landlords have been prompted by the current low mortgage rate environment to switch to a better deal, with the number of buy to let remortgages up 54% since July 2014. Mortgage interest payments can be up to 50% of landlord’s total annual costs, so savvy investors will be grabbing the opportunity to cut their monthly repayments with both hands,’ he said.
However, he also pointed out that the changes announced in the Summer Budget pose a significant threat to landlord profitability and threaten to derail future investment in the buy to let sector. ‘The scaling back of tax relief on mortgage interest payments will have a significant impact on the bottom line for many landlords who pay above the basic rate of income tax, and some could fall into a loss making situation,’ he said.
‘This is not only unfair for those landlords who spent years building up a buy to let business, but is also likely to have negative consequences for those who depend on the rental sector for accommodation,’ he explained.

‘Some landlords may be forced to raise rents to regain the profit lost as a result of the changes. Others may resort to selling up and abandoning buy to let altogether, constricting supply at a time of severe property shortages. Landlords must ensure they have a robust business model that maximises rental income if they are to survive the changes and still turn a healthy profit,’ he added.