Halfway house

26 November 2009 | By Gregor Watt

Last week, the Council of Mortgage Lenders announced gross mortgage lending in October up by 5 per cent on the previous month. The same day the Bank of England published its Trends in Lending report for November, recording a 9 per cent increase in the number of mortgage approvals in the month of October, up to 61,000 from 56,000 the month before.

A week earlier, the Royal Institute for Chartered Surveyors reported continued house price growth, a steady rise in buyer demand and an increase in newly agreed sales. It attributes much of the increase to higher levels of activity of first-time buyers.

Rics spokesman Jeremy Leaf says: “Although the supply of property is beginning to pick up, it is still insufficient to keep pace with the increase in demand, which points to further price gains in the near term. Cheap money remains a critical prop for the market and this is being reflected in the continuing appetite for finance from first-time buyers, despite the large deposits still being demanded by lenders.”

Mark Blackwell, managing director of mortgage IT outsourcing company Xit2, says: “While the CML gross lending figures are not anything to write home about, the Bank of England’s latest Trends in Lending survey and the research from Rics is much more positive. Clearly, lenders’ commitment to lend at higher loan to value is helping boost lending to first-time buyers.

“With the stamp duty exemption due to end on December 31 and lending to first-time buyers on the rise, this should support the gross mortgage lending figures for the last couple of months for the year.

“Even taking the seasonal slowdown into account, the year-on-year comparators should look healthier when the November and December figures are released.”

This growth in activity has also been matched by a small increase in activity from lenders. Mortgage Advice Bureau head of lending Brian Murphy says: “These latest figures are encouraging and a reflection of market conditions becoming slightly more favourable in terms of the availability and pricing of mortgage finance.

“In the last quarter, the number of mortgage deals on the market increased by 43 per cent, as lenders appear to have rediscovered their appetite for lending again. Significantly, we are also now seeing a degree of price competition at the 70-75 per cent LTV level, which is certainly helping fuel the pick-up in the first-time buyer market.”

But despite such rosy figures, many people in the sector suggest the positive news may be only temporary.

Mortgages for Business managing director David Whittaker says: “It is encouraging for the property market that the Bank of England is reporting more first-time buyers are committing to buying homes. But the rise in gross lending reported by the CML today is not out of the ordinary for this time of year. Many borrowers are still unable to secure finance unless they have enormous deposits, and, entering the Christmas period, we can expect lending to slow considerably.”

And with the stamp duty exemption for property purchases of £175,000 or less due to expire on January 1, 2010, some believe that signs of life in the first-time buyer sector could be snuffed out.

James Moss from Curzon Investment Property, a boutique investment specialist, says: “While on the surface it appears Christmas has come early for homebuyers, mortgage lending is still skating on thin ice and is massively down on last year.

“With around 1,500 mortgage products there is one tenth of the choice consumers had two years ago, and the increase in deposit requirements has meant many simply cannot contemplate ownership.

“The Government is also once again threatening the recovery by refusing to extend the stamp duty holiday. This will kill off the prospects for many first-time buyers wishing to enter the market.”

LSL Property Services commercial director David Brown warns it is too early to start celebrating the return to a normal mortgage market.
Brown says: “The 5 per cent jump in gross lending reported by the CML creates the illusion that lending has taken a great leap forward, but in fact, it is standing still. This is seasonal growth. Last year, gross lending jumped 8 per cent in October, despite falling for three consecutive months beforehand - not a sign of progress.

“Homebuyers and property investors have been crying out for affordable mortgage finance, but lenders are still not meeting their needs. Numbers of first-time buyer loans may have risen slightly in the last quarter, according to the Bank of England, but they are still being held back by lending criteria.

“Equally, investors in the private rental sector are bearing the brunt of overly strict lending. Despite house prices increasing and returns slipping back into the black, the proportion of gross lending for buy-to-let in the last quarter has dropped to less than 6 per cent.

“More competitive fixed- rate and tracker mortgages are becoming available, but until mortgage lenders offer realistic loan-to-value mortgages to homebuyers and investors, lending figures will remain subdued.”

 

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