UK home loan approvals surge to highest since December 2009

by Ray Clancy on February 14, 2012

Mortgage market seen to be, so far, repelling onslaught from Eurozone

Loans for house purchases in the UK surged to 58,610 in January, according to the latest Mortgage Monitor from e.surv chartered surveyors.

This is the highest level since December 2009, and resulted from an increase in lending to borrowers with small deposits. The figure represents an 11% increase on the 52,939 purchase approvals in December, and a 29% year on year increase from January 2011.

The sharp increase has been driven by more loans to borrowers with small deposits, with more first time buyers being given access to high loan to value (LTV) mortgages by lenders.

Since January 2011, high loan to value lending has almost doubled. Loans to borrowers with a deposit of under 15% accounted for only 7% of all loans for house purchase back in January last year, but have risen to account for almost 13%.

This has helped more low income and first time buyers get onto the property ladder, with the number of loans to these borrowers increasing at a faster pace than loans to wealthier borrowers. There were 15,329 loans for purchase of homes costing below £125,000 typically bought by first time buyers. This was the highest number since March 2008, and a 31% increase from January last year.

Additionally, there were fewer loans on expensive property in January than in December, as the number of loans for purchase of expensive property fell in all price brackets over £376,000, suggesting wealthier buyers are beginning to represent a less disproportionately large share of the market.

Despite the improvement, deposit requirements are still high by historic standards, which mean first-time buyer numbers remain suppressed compared to their pre-2008 levels. In January 2007, the average deposit for house purchase loans was 31%, compared to 38% in January 2012.

‘The mortgage market has so far done a reasonable job in repelling the onslaught from the eurozone. LTVs have trended steadily upwards over the past six months, and approvals volumes are holding up well. Lenders pushed out a spate of high loan to value mortgages in the summer to cater for the backlogged first time buyer market, and, although they have taken time to feed through, we now are we beginning to see borrowers take them up in notable numbers,’ said Richard Sexton, director of e.surv.

But he warns that it won’t last forever as the rate at which banks lend to each other, LIBOR, has been creeping upwards.

‘The banks are yet to pass these extra costs onto the consumer, but this is sure to happen, and will come in the guise of higher mortgage rates. If the situation in the eurozone becomes more tumultuous, which looks possible, lenders will batten down the hatches and scale back the amount they lend to first time buyers,’ he explained.

‘The early months of 2011 were so weak that the year on year growth in January is more an indictment on how suppressed lending was a year ago than it is a sign of a vibrant market. First time buyer numbers are still low by historic standards and buy to let lending is forming an increasing share of overall lending,’ he added.

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