Home Buyers:Lending to first-time homebuyers increased 11 per cent last year and reached its highest level since the financial crisis, a detailed analysis of the 2012 mortgage market found.
Home Buyers:There were 63,896 house purchase loans granted to buyers with small deposits – those with 15 per cent or less – last year, up from 57,691 in 2011, according to the Mortgage Monitor from chartered surveyors e.surv.
This marked the best year for high loan-to-value lending since 2007. However, this increase took place in the first half of the year, before the launch of the Government’s Funding for Lending Scheme, which enabled Britain’s banks and building societies to tap into £80billion of cheap money.
The scheme, which commenced in August, could not stop the usual second-half slump in new loans: there was a fall of 13 per cent in the second half of the year. There were 34,217 loans to borrowers with small deposits in the first half of the year, but just 29,679 in the second half, thanks to a squeeze on bank funding and an unexpected dip in the economy. Although the range of high Loan-to-Value (LTV) mortgages available improved, banks continued to keep a close reign on underwriting criteria more generally in the second half of the year. This was despite a record quarterly increase in last three months of the year to the mortgage credit available to lenders, in part stimulated by the Funding for Lending Scheme. The ongoing struggles of the economy, and a squeeze on funding from the money markets, meant lenders were reluctant to use the cheaper funds to significantly increase lending to high LTV borrowers. But January has seen a flurry of deals for first-time buyers, including the Barclays five per cent deposit ‘Family Springboard’ mortgage and HSBC launching a two-year fixed rate mortgage of 4.19 per cent and a five-year fixed rate of 4.69 per cent for borrowers who can raise a ten per cent deposit.
Mortgages breach 600k mark for first time in five years
Last year was the strongest year for house purchase lending since the financial crisis, with the number of loans breaching the 600,000 mark for the first time since 2007. Purchase approvals rose three per cent from 590,425 in 2011 to 607,058. The stabilisation of the eurozone crisis, and access to cheaper mortgage funds for banks, were the foundations of the improvement, the survey says. The increase in 2012 took house purchase lending levels to 16 per cent higher than they were during the market’s low point in 2008. Richard Sexton, business development director of e.surv, said: ‘The first half of 2011 was pitifully weak for mortgage lending, even by post-2008 standards. ‘The eurozone crisis was in full swing back then and lenders’ funding lines were painfully constrained. ‘The crisis began to stabilise in 2012, which boosted confidence and increased banks’ appetite for riskier lending to high LTV borrowers. And funding became cheaper for lenders in late 2011 and early 2012, which encouraged banks to offer more competitive rates.’
Summer was the weakest for mortgage lending
The summer months were the weakest of the year according to the analysis. The Olympics distracted potential homebuyers over the late summer and early autumn, and also coincided with a weaker than expected quarter of economic growth. There were just 14,887 house purchase loans granted to borrowers with small deposits during July to September, well below the average for the year. The last three months of the year saw a meaningful improvement, helped in part by the start of the Funding for Lending Scheme, but still lagged well behind lending levels in the first half of the year, the survey added. The improvement was thanks largely to banks focusing on wealthier borrowers – despite lending increasing in October and November, lending to borrowers with small deposits accounted for the same proportion of overall lending during July and September. Richard Sexton added: ‘At first glance the first and second half of 2012 look remarkably similar. There were 304,204 loans in the first half and 302,854 in the second, suggesting a consistent improvement in the mortgage market over the course of the year. ‘But the devil is in the detail, especially for first-time buyers. Lending levels in the second half of the year were only sustained by a disproportionate focus on lending to wealthier buyers, whereas in the first half of the year the improvement in lending was spread more equally between poorer and wealthier borrowers.’
Funding for Lending to have huge impact this year
The Bank of England has suggested Funding for Lending will have a much greater impact on lending in 2013. It failed to have much of an effect in late 2012 because of credit lags for loans. On top of that, a relaxation of bank capital adequacy rules – which will give lenders more time to establish the capital buffers stipulated by regulators – should free up more funds for mortgage lending in 2013. Instead of a full buffer by 2015, banks will only be required to build up 60 per cent of the required amount. – thisismoney.co.uk