Recovery in house purchase lending focused in the North
There were 7,093 loans to borrowers with a deposit of 15% or less in August compared to just 4,827 in August 2012 as banks increased lending to high LTV borrowers.
Richard Sexton, director of e.surv chartered surveyors, said: “House prices in the North have risen more slowly over the last five years than in much of the UK and so that’s driven a boom in high LTV borrowers in the North for whom house purchase loans are still affordable.
“Borrowers with smaller deposits fell out of the bottom of the market when the financial crisis hit but they are returning now in their droves.”
Sexton said access and affordability are the two keys to the mortgage market and with banks easing criteria and rates staying low the market is now unlocked for high LTV borrowers.
The findings showed 21% of all house purchase loans in the North East and Cumbria were to high LTV borrowers in August, the highest proportion of any region.
The regions with the second and third highest proportion of high LTV borrowers were the North West and Yorkshire at 20% and 18% respectively.
Across the UK there were 60,114 house purchase loans in August, 26% higher than twelve months ago. It marked the strongest August for house purchase lending since August 2007.
The hike in high LTV house purchase lending was reflected in a significant rise in the number of loans made on properties up to the value of £125,000 which is the typical price range for a first-time buyer property.
In August there were 13,826 loans on properties up to this value 16% more than in August 2012 when there were 11,949.
But monthly figures show that the improvement in lending is being slowed by rising house prices and weak wage growth.
House purchase lending fell 1% from 60,624 approvals in July. And lending to high LTV borrowers fell 5% in the month to August despite the significant recovery on last year.
Sexton added: “But there are already signs that the recovery at the bottom end of the market could slow. Borrowers looking to take out mortgages with smaller deposits are typically first-time buyers.
“They’re hit the hardest by rising house prices, low savings rates, and high inflation. Weak wage growth, which is consistently tracking below inflation, is another factor.
“Even though banks are more willing to offer mortgages to borrowers with smaller deposits it’s harder to put together the deposit in the first place.”
The Midlands was the region showing the biggest improvement in lending to high LTV borrowers.
Last August 11% of all approvals in this region were to high LTV borrowers but that figure has climbed over the past year to 15%. Factoring in a rise in approvals nationwide, this equates to 450 more loans – a 66% rise in the total number of approvals.
But the story in the capital is less positive – the only region in the UK in which loans to high LTV borrowers have fallen proportionally. In London, although total approvals have risen over the last year, the proportion of high LTV loans has fallen 0.3%.
There were 9,438 loans to borrowers in London in August but only 3.8% of these were to high LTV borrowers.
Sexton added: “In London the market is dominated by equity rich borrowers and that domination is getting stronger.
“This is a result of rising house prices which are pricing many buyers out of the market. It’s compounded by a lack of supply in the capital which is prices up faster than the rest of the country.
“The only solution – other than to increase support for borrowers – is to add more housing stock, to try and match demand.”