Mortgage Blog: First-time buyer lending at highest level for seven years

Posted 15 August 2014

New figures have revealed that the UK mortgage market continues to grow, with lending in June up 6% on the previous month and a fifth higher than the same month in 2013. The number of first-time buyers also continues to increase with one in five loans now being granted to borrowers with a smaller deposit.

Changes to mortgage regulations earlier this year have also had a limited effect on mortgage applications, with changes to affordability rules proving to be little more than a ‘gentle dampener' on the market.

First-time buyer demand bolstering housing market

The latest figures from the Council of Mortgage Lenders (CML) show that total gross lending for June was £17.9bn, up 6% on May and 20% on June 2013. £4.2bn of the figure consisted of loans to first-time buyers; a figure 7% higher than the previous month and 19% on June 2013.

28,600 loans were granted to first-time buyers in June, the highest level since late 2007. The data also revealed that first-time buyers are prepared to commit more of their income to a mortgage. The loan-to-income ratio rose slightly, from 3.46 times annual income in May to 3.47 times in June.

Richard Sexton, director of e.surv chartered surveyors, said: "Steadily growing first-time buyer demand is bolstering the housing market and lifting lending levels. Interest rates remain low, allowing first-timers to enjoy cheaper repayments and lock into affordable fixed-rate deals.

"And banks are offering a larger array of deals to support borrowers struggling to put together a large deposit to get onto the housing ladder."

New rules have been a ‘gentle dampener' not a ‘hard brake' on mortgage lending

New rules that came into force in April require lenders to more strictly check whether a mortgage will be affordable to borrowers. The Mortgage Market Review (MMR) was designed to avoid reckless lending and applicants now have to go through a lengthier mortgage interview and provide more details about their spending habits.

Despite these changes, the number of first-time buyers is continuing to rise. CML director general Paul Smee said "We now feel confident that, as we would hope, the MMR effect is more ‘gentle dampener' than ‘hard brake'.

"As we recently suggested in our revised forecasts, lending levels should continue to increase modestly over the course of the year, driven mostly by house purchase but with remortgaging also recovering."

The data from the CML showed that first-time buyers taking out mortgages in June typically borrowed 3.43 times their gross income, compared with an average loan-to-income multiple of 3.33 a year earlier.

The typical mortgage size for first-time buyers was £123,865 in June, up from £121,500 in May.



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