Lending criteria

Estimates suggest that a higher proportion of young first-time buyers than ever before are getting help from parents to enter the market. But, the latest data shows signs that lending criteria stopped tightening in May. Since reaching a record 25 per cent in February, the average first-time buyer deposit has remained unchanged. And the typical first-time buyer income multiple has held at 2.97 from April.

Home movers typically borrowed 67 per cent of the value of the property in May, unchanged from April, and borrowed 2.68 times their income, up from 2.63 in April.

A modest easing in these measures is expected over the summer, as some higher loan-to-value products came on to the market in recent months and lenders reported that they intend to increase lending at higher loan-to-value ratios in the Bank of England’s recent Credit Conditions Survey.

The number of loans for house purchase edged up 4 per cent from April to 37,400 (worth £4.7 billion), but this is 28 per cent lower than the number of loans in May 2008. House purchase lending is still depressed by historical standards: in the last seven years the May average was 96,000 house purchase loans.

Remortgaging volumes remain extremely weak with 29,000 loans in May, a 9 per cent fall from April and a 63 per cent decline from a year earlier. Demand for remortgage is falling as many borrowers exiting fixed rate periods find themselves reverting to relatively attractive standard variable rates. In addition, lower house prices and tighter loan-to-value constraints continue to limit access to the better priced remortgage products.

First-time buyer numbers were little changed with 14,000 loans worth £1.5 billion in May, compared with 13,700 loans worth £1.5 billion in April.

But that doesn’t mean the challenges for first-time buyers are over. Newly updated analysis suggests that around 80 per cent of first-time buyers aged under 30 are likely to be receiving help from parents as they are unlikely to have been able to build up the deposits needed to enter the market from their own resources.
Fixed rate deals continued to take an increasing proportion of new business as borrowers may be seeking certainty over future payments at a time of wider economic uncertainty. Fixed rate products accounted for 74 per cent of all loans in the month, the highest share since August 2007, while 16 per cent of new loans were tracker products.

Lending still remains at very low levels, with the modest increase in house purchase activity off-set by a fall in remortgaging. The trend of tightening lending criteria seems to have subsided and their may be a modest easing in these measures over the summer, which will help some borrowers. But overall, access to mortgage finance is expected to be constrained by the diminished number of active lenders and shortage of funding available to them.

Source: Council of Mortgage Lenders