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Q2 lending sees gentle increase but remortgaging down

Robyn Hall

August 11, 2014

In the second quarter home purchase lending volumes increased by 17% to 171,000, while values totalled £28.2bn, up 19% from the first quarter.

But remortgage lending was more subdued, with 23,600 loans being advanced, 8% less than June last year, yet 1% more than May. However the value of loans increased by 6% to £3.7bn monthly.

Paul Smee, director general of the CML, said: “For the second month running since new FCA rules took effect, lending characteristics remain similar to the market beforehand.

“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.”

Charles Haresnape, Aldermore’s managing director for mortgages and commercial lending, added: “Despite fears over MMR lengthening the application process, a likely base rate increase and house price levels, today’s figures from June are wholly positive and reflect what we are seeing across the market.

“There continues to be pent-up demand right across the board, particularly for first-time buyers whose numbers continue to be strong. The increase across the Buy-to-Let market is also welcome and shows strength across the wider UK mortgage sector.”

And Stephen Smith, director Legal & General Mortgage Club and Housing, said: “This year has seen the UK starting to move again. Lending figures for both first-time buyers and movers have significantly increased compared to last year.

“As well as illustrating the strength of the housing market it also shows the recovery in the wider economy. This is despite the introduction of the MMR in April, which some predicted would dampen lending and mortgage transactions overall. Clearly this isn’t the case.

“That lending figures have largely held up shows that many of the changes had already been implemented ahead of the deadline and have had a minimal knock-on effect on borrowers. Over the coming months, we expect that re-mortgage figures will also start to rise as borrowers begin to prepare for an inevitable increase in interest rates.”

There were 79,900 loans to first-time buyers on a quarterly basis, while the total borrowed rose by 12% to £11.5bn.

At 91,000 there were 16% more loans for home movers in Q2 compared to Q1, while the gross figure increased by 19% to £11.3bn.

In contrast the value of remortgage lending decreased by 2% from the previous quarter, standing at £11.3bn. The number of loans also fell by 5% to 74,000.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “One area of the market which is subdued is remortgaging – all the more surprising when you consider the excellent rates available and the threat of an interest rate rise.

“One can only assume that homeowners are either struggling to remortgage because of MMR or think it will be difficult, so aren’t bothering to apply in the first place.”

And David Brown, commercial director of LSL Property Services, added: “As the property market gains altitude, all systems are starting to tick over more normally.

“But to get the dream of homeownership truly airborne, we need more homes. Building levels are growing rapidly, and this will need to carry on indefinitely.

“If so, the house purchase market could one day see affordability improve consistently, as we’ve seen with the private rented sector.

“But in the meantime, below-inflation rent rises, thanks to solid buy-to-let activity, will be a vital alternative for millions of households.”

Recent monthly growth has been driven by home purchase lending, as 60,500 loans were issued, while the value totalled £10bn, a 6% increase month-on-month and a 23% increase compared to June 2013.

The number of first-time buyer loans increased by 7% from June to May at 28,600, while the value of lending increased by 11% to £4.2bn.

Lending to home movers also increased by 5% to 5.9bn.

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.

“One in five home loans were to high loan-to-value borrowers in June, compared to one in nine twelve month before, as the first-time buyer effect grows in strength. But this is a signal of increasing lender confidence – rather than a cause for concern.

“Before the financial crash, there were four times as many high LTV loans as there are now. And the regulations implemented in April ensure borrowers’ finances are put through their paces before any loan is offered – making sure they will withstand the eventual hike in the base rate. The bounce back in home lending shows that the temporary bottleneck caused by MMR has now been alleviated, and the market has returned to steady, healthy home lending volumes.”


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