The number of loans advanced for house purchases in the UK in January was at its lowest monthly level since February 2015 and at a near two year low, the latest data shows.
Home buyers borrowed £8.4 billion in the first month of the year, down 28% on December and unchanged on January 2016. This came to 45,700 loans, down 28% on December and 1% on January 2016, according to the figures from the Council of Mortgage Lenders (CML).
First time buyers borrowed £3.6 billion, down 29% on December but up 9% on January 2016 while home movers borrowed £4.9 billion, down 25% on December and 4% year on year.
In the buy to let sector both the number of loans and the amount borrowed decreased compared to January 2016 but month on month they were up 11% by value and 12% by volume.
Year on year remortgage lending was up by 22% by value and 21% by volume and month on month up 54% and 46% respectively, the figures also show.
‘January gives the impression of a flattish market overall, albeit one with a resurgent remortgage sector. We expect a seasonal dip in activity in the winter months and this appears to be the case in January,’ said Paul Smee, director general of the CML.
‘However, the lull in moving activity appears stubbornly persistent, and we have commissioned research on the reasons why the number of transactions seems in secular decline,’ he pointed out.
‘Buy to let house purchase activity continues to be weak, despite strong buy to let remortgage levels. This will likely remain so going forward as lenders tighten affordability criteria ahead of the PRA mandated stress tests, and the introduction of tax changes in April,’ he added.
Peter Williams, executive director of Intermediary Mortgage Lenders Association (IMLA), pointed out that the past 12 months have been tumultuous for the economy and it is encouraging that the market has such strong fundamentals that is has been sustained despite that context.
‘Moreover the fact that the value of lending to first time buyers is 9% higher than a year ago is also good news, with low rates continuing to support this group despite house prices growing much faster than incomes,’ he said.
He also pointed out that with tougher buy to let lending rules now in place from the Prudential Regulatory Authority (PRA) which followed the changes to stamp duty on second homes last year the sector is feeling the effective of ‘punitive policies’.
‘While lending to the buy to let sector increased between December and January, much of this was driven by buy to let remortgaging and there are legitimate concerns about the sector’s health. Millions of people depend on a well-functioning private rented sector for secure and affordable accommodation, and policymakers risk jeopardising this through successive punitive policies,’ he explained.
The current trend is set to continue in 2017, according to Andrew McPhillips, chief economist at the Yorkshire Building Society. He explained that strong year on year growth in both the remortgage and first time buyer markets while figures for all other home buyers remain static suggests that this is not simply a result of the usual January housing market lull.
‘Existing home owners are making a conscious decision to stay where they are, resulting in fewer suitable available properties for growing families. We can expect to see this trend continue over the next year as people tighten their belts due to expected higher inflation and predicted wage stagnation,’ he said.
‘Fewer available properties on the market may also cause house prices to continue to grow faster than the average household income, making it even more challenging for families in need of more space to make their next steps on the property ladder. To mitigate these market constraints, more affordable homes need to be built to tackle the housing deficit which stands in excess of 1.2 million across the UK,’ he added.
Shaun Church, director at Private Finance, believes that the lack of properties coming onto the market means many would-be movers are staying put, while the buy to let sector continues to suffer the effects of punitive tax changes.
‘After concerted efforts to drive up first time buyer numbers in recent years through schemes such as Help to Buy, it’s positive to see more buyers are now able to join the property ladder. While deposit requirements remain a challenge, mortgage rates have never been lower. Healthy competition between lenders means first time buyers have plenty of attractive products to choose from,’ he said.
‘The remortgage market has also been given a shot in the arm by falling rates, with home owners able to make significant savings by swapping to a new deal. However, other areas of the market are clearly struggling. The dearth of properties coming up for sale is cutting off the flow of transactions across the market. The stamp duty surcharge has also created stagnation at the top end of the market, further preventing a healthy cycle of activity,’ he explained.
‘Property supply underpins house price values, so this restricted movement is likely to worsen affordability issues in the long term. The buy to let sector is not expected to make any significant recovery this year as tightened affordability criteria and the reduction of mortgage tax relief threatens to further dampen activity. With rents likely to rise in response, this could have a knock-on effect on first time buyer numbers as it becomes harder for tenants to save for a deposit,’ he added.
Steve Bolton, founder of Platinum Property Partners, also believes that buy to let is being dampened by the tax and regulatory changes. ‘Year on year, the effects of recent punitive tax changes and tightened affordability criteria are clearly visible. The market is predominantly being kept afloat by remortgage activity, which now accounts for over two thirds of total buy to lending. Today’s low interest rate environment means landlords stand to make significant savings by swapping to a new deal,’ he said.
‘However, buy to let activity is being dampened by a string of regulatory changes impacting the market. The stamp duty surcharge caused a spike of activity last March, but has since reduced the number of landlords looking to expand their portfolios. Next month, private landlords’ ability to deduct finance costs as a business expense will be restricted, which poses an even greater threat, as many investors will see their tax bill erode their profits. Some will ultimately leave the market, while others will be forced to put up rents for their business to remain viable,’ he pointed out.
‘Tenants will be the ultimate victims of the Government’s persistent battering of landlords. Restricted supply of rental properties and higher rents makes it harder for tenants to be able to save for a deposit. The Tenant Tax is based on a fundamental flaw: that removing landlords from the market will free up properties for first time buyers and remove the affordability issues affecting the market. This simply isn’t true, and the sooner the Government realises this and abolishes the policy, the better,’ he concluded.
However, David Whittaker, chief executive of Mortgages for Business, believes that the buy to let sector is still very much a viable one. ‘The buy to let market is fortunate to be underpinned by high demand for privately rented accommodation, despite obstacles aimed at curbing its growth,’ he said.
‘This year, buy to let lending overall is likely to be more muted than in 2016 but it still remains a viable proposition, particularly for landlords who treat property investment as a business rather than an alternative pension plan,’ he added.
