Mortgage lending picks up in March
The flow of lending for home buying in the UK picked up slightly in March from February, with a rising proportion of first time buyers entering the market, although the overall level of housing activity remains substantially below that in 2008.
Data released on Thursday from the Council of Mortgage Lenders showed that 31,000 loans for house purchases were made in March, up from only 24,000 in each of January and February, but 33 per cent below the levels of March 2008, when housing activity was already subdued with house prices falling.
The figures are consistent with the latest survey from the Royal Institution of Chartered Surveyors this week which showed rising interest from prospective buyers and a decline in pessimism about future house prices.
Remortgage activity also picked up slightly from February, but remains 45 per cent lower than that of March 2008. The CML said it expects remortgaging to remain muted, partly because interest rates for borrowers whose fixed rate term has expired are relatively low. The average Standard Variable Rate on mortgages in March was 4.41 per cent, down from 4.69 per cent in February, following the move by the Bank of England to slash its key rate to a record low of 0.5 per cent.
But remortgaging also remains muted because falling house prices mean many homeowners no longer have enough equity in their property to persuade lenders to refinance their loans at attractive rates, the CML said.
Meanwhile, the data show that banks are continuing their new-found caution on lending, with the average loan-to-value ratio of first time buyers at 75 per cent, level with that of February but in stark contrast to the average 89 per cent last year
“For those with deposits large enough to enable them to buy, the combination of low interest rates and lower house prices mean that their monthly interest payment now equities to only 15.1 per cent of their income, the lowest proportion since June 2004,” the CML said.
However, economists have noted that such caution is likely to be a barrier to the entry of first time buyers to the housing market whose participation is needed in order to underpin prices.
“The CML Mortgage data add to the mounting evidence that house price activity is picking up to a limited extent in response to the substantial fall in house prices from their 2007 peak levels and markedly reduced Mortgage rate,” said Howard Archer, chief economist at IHS Global Insight.
However, he noted that activity remains so weak overall that there is little prospect for a pick-up in prices. “While housing market activity has passed its low point, ongoing very poor economic fundamentals and still tight credit conditions suggest that the improvement in activity will be relatively gradual and fitful for some time to come. Consequently, house prices look likely to fall significantly further.”
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