First-time buyer lending recovers in Q2

Ryan Bembridge

September 13, 2016

Bank of England

First-time buyer activity bounced back as high loan-to-value lending increased in the second quarter of 2016, the Bank of England’s Mortgage Lenders and Administrators statistics have revealed.

First-time buyers saw their share of all gross mortgage lending rise from 16.9% in Q1 to 21.99% in Q2 2016 – close to its Q4 2015 level of 20.87%.

Lending above 90% LTV also recovered after falling off a cliff, as business above 90% LTV accounted for 4.06% of new business in Q2, up from 2.72% in Q1 and 3.18% in Q4 2015.

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Simon Crone, commercial director of AmTrust International, mortgage and special risks, said: “Lending to buyers with small deposits has bounced back sharply from a worrying fall in the first quarter to reach its highest level in over a year.

“The dramatic fall in Q1 reflects the increased activity of buy-to-let landlords ahead of April’s stamp duty changes, as first-time buyers who rely on high LTV lending were muscled out of the market.”

But Crone is worried the high LTV market will lose ground in the next quarter.

He added: “The early signs for high LTV lending in Q3 are worrying and suggest that Q2’s lending figures are unlikely to be repeated.

“Our recent LTV tracker found that the number of available mortgages for those with 5% deposits fell after the UK voted for Brexit, from 249 in June to 238 in August as lenders review their risk appetite in the wake of the vote.

“Along with Brexit, proposed regulatory changes could also lead to diminished lender appetite as a result of higher capital requirements for lenders offering high LTV loans, which would be an extra blow to lending to those with small deposits.

“There is also a question mark as to what will happen when the Help to Buy mortgage guarantee scheme, which has been vital in stimulating this part of the mortgage market, comes to end later this year.

“It is clear that a long-term solution is needed. Private mortgage insurance is proven to be an effective tool at encouraging high LTV lending while also protecting the taxpayer, keeping risk down – of particular importance in the post-Brexit world – and maintaining high lending standards.”

Buy-to-let took a 13.11% of the market in Q2, down from 21.09% in Q1, with remortgage taking a 29.99% share in the first quarter after standing at 25.27% in the first quarter.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Unsurprisingly, there was as drop off in buy-to-let lending compared with Q1 as investors brought forward buying decisions to the first quarter of the year in order to beat the hike in stamp duty at the start of April. While buy-to-let has come under attack in recent times, with a number of tax changes as well as the increase in stamp duty for landlords, demand is likely to recover over the rest of the year as there remain precious few other options for people to invest their money.

“There was a significant uplift in remortgaging compared with the first quarter as homeowners took advantage of cheap mortgage rates. Although there is little sign of an interest rate rise on the horizon, fixed rates in particular are just too good to miss out on.”

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