Lending dips in May ahead of Brexit vote

Ryan Fowler

June 9, 2016

house price falls

A further slowdown in home lending in May ahead of the EU referendum means house purchase lending activity has fallen to a 12-month low, the Mortgage Monitor from e.surv has found.

May saw 65,113 house purchase approvals (seasonally adjusted), down 1.7% from 66,250 the previous month.

This marks a 12-month low in lending levels, and is the lowest monthly figure for home purchase loans since the 64,626 granted in May 2015. It follows monthly declines seen in April (-5.8%) and March (-3.0%) meaning volumes have fallen 10.5% over the last three months, as the political uncertainty ahead of June’s upcoming EU Referendum may be causing caution amongst lenders and borrowers alike.

Consumer confidence still lower than before Brexit

The recent falls represent a marked turnaround from the peak in lending seen at the start of the year.

January and February both saw strong numbers of house purchase approvals granted (73,060 and 72,512 per month respectively) as buy-to-let landlords and second homebuyers pushed through purchases ahead of the stamp duty changes in April.

Now, by comparison, the lending market is settling back into its usual rhythm. On an annual basis however, house purchase lending rose marginally in May, by 0.8%.

The proportion of small-deposit lending also dropped slightly in May, to comprise 18.4% of total home lending – down from 19.1% the previous month.

Meanwhile, lending to large-deposit buyers, those with a deposit of 60% or more, picked up significantly and now makes up almost a third (30.7%) of all borrowing.

Richard Sexton, director of e.surv chartered surveyors, said: “Lenders may need to navigate choppier waters over the next couple of months, but for now the mortgage market remains on an even keel.

“Homebuyers have more options than ever as lenders work to expand their range of mortgage options further. New mortgages with longer repayment terms and innovative intergenerational mortgages are offering financial buoyancy aids for buyers.

“But the EU referendum is causing some nervousness within financial circles and bringing new unknowns with it.

“This political milestone could impact the UK’s economic outlook and slowing growth could pose problems of its own for both lenders and borrowers.

“Juggling these challenges will be key to maintaining the current health of the mortgage market and lenders should brace themselves for possible surprises.

“Faced with this uncertainty, it’s perhaps no surprise that home lending levels are falling slightly.

“The result is a slight tail-off mid-year, as homebuyers pause for thought and lenders are gifted more time to investigate the potential of offering additional mortgage choices. A lull in buy-to-let lending following April’s stamp duty changes has also added to this calming in the market.”

Small-deposit loans (to buyers with a deposit worth 15% or less of their properties’ total value) totalled 11,981 in absolute terms in May, down 5.3% from 12,654 granted the previous month.

As a proportion of overall home purchase lending, small-deposit borrowing accounted for 18.4% in May – dipping from 19.1% in April.

Despite a drop in the proportion of small-deposit lending, the latest  First Time Buyer Tracker from Your Move and Reeds Rains reveals that first-time buyer transactions in April reached a 2-year high – with 32,300 completed. This was 14.9% higher on a monthly basis than the 28,100 transactions in March.

Meanwhile, large-deposit lending to borrowers with a deposit of 60% or more increased proportionally to comprise 30.7% of total borrowing, up annually from 28.2% in May 2015.

Sexton said: “First-time buyers may be feeling more positive as new mortgage options flood the market, but more still needs to be done to ensure small-deposit lending stays a priority.

“Given the demands of saving for a deposit, high LTV lending continues to be crucial to helping aspiring buyers on to the ladder. Low inflation and rising wages can only do so much to combat climbing deposit demands. Meanwhile, some first-time buyer schemes like Help to Buy 2 are due to be phased out at the end of the year.

“This could curb first-time activity if it means the improvements made to support first-timers start to fall away.

“Competition for properties has been temporarily eased by the government’s interventions in the private rental sector, which mean first-timers aren’t having to fight for properties with landlords in the same way that they were. But managing demand isn’t a sustainable way to control the property market over the long-term.

“The real solution is to solve the supply shortfall haunting the property market. There’s always talk about new homes, but across the country, homebuyers – especially first-timers – need action not words.

“An increase in available homes would help affordability and inject a new energy into the property market, relieving some of the pressure on prospective  homebuyers. Without an injection of supply, property prices and deposit requirements will continue to climb, leaving the market even more reliant on the high-LTV sector.”