Lending to UK home buyers increases

Home purchase lending in Britain rose by 9% in July, in comparison to the same month one year ago, with a report suggesting that the more positive economic outlook is allowing more people to enter the market.

The research, conducted by the Council of Mortgage lenders indicate that first-time buyers saw a month-on-month increase in volume and value activity in comparison to June and also a yearly rise from the previous July.

Activity

Home mover lending saw more of an increase in monthly and yearly activity than that seen by first-time buyers, but home-owner remortgage activity dipped slightly over the month. However, there was a substantial increase in these types of transactions in comparison to the same period of 2014.

Buy-to-let activity continues to rise, both yearly and monthly, which the Council of Mortgage Lenders suggests is driven by remortgage activity.

‘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 Council of Mortgage Lenders.[1]

‘That 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,’ Smee added.[1]

Purchase lending

Home purchase lending also saw upward movement, for the third consecutive month. UK gross lending for July totalled £21.7bn, up 8% on June and 12% on July last year.[1]

In July, the value of homeowner loans specifically for house purchases made up 56% of total gross lending, with remortgaging activity accounting for 24%. This rise was driven by both first-time buyers and home-movers.[1]

This said, the rise in volume and value terms for homemovers was stronger than for first-time buyers. The gross lending figure represented the largest level by volume since November 2007 and by value, the largest monthly level since October 2007.[1]

First-time rises

First-time buyers made up 45% of total house-purchase lending, which makes up a larger proportion of activity than before the financial crisis, when these types of transactions were as low as 30%. As a proportion of total lending, buy-to-let made up 18%.[1]

The data shows that first-time buyers enjoyed that highest-monthly home mover lending level by volume since August 2007. In addition, monthly volumes of home mover lending levels were at their highest since December 2009 and by value, at their highest level since November 2007.[1]

Homemovers spent 18.1% of their gross monthly household income to pay-off capital and interest repayments, up month-on-month but down on the same period one year ago. Remortgage activity settled to 6% by volume and 4% by value to July, but year-on-year, volume increased by 26% and value to 34%.[1]

Lending to UK home buyers increases

Buy-to-let boom

Buy-to-let lending for house purchase has also increased, at a greater rate than home owner loans for house purchase for the majority of the year. Loans to home-owners for house purchase fell by 50% in volume terms from 2007 to 2009, with buy-to-let loans four house purchases declining by 71% in the same period.

Steve Bolton, chairman of the Platinum Property Partners, believes that it is clear that buy-to-let is the greatest performing area of the mortgage market to date in 2015, with annual growth in both 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,’ Bolton observed. ‘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 added.[1]

Bolton went on to suggest that the changes outlined in the Summer Budget are a substantial threat to landlord profitably and could threaten to put many potential landlords off investing in the sector. He said that, ‘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.’[1]

Unfair

Mr Bolton believes that,’ 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.’[1]

‘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 concluded.[1]

[1] http://www.propertywire.com/news/europe/uk-residential-property-lending-2015091610986.html