Borrowers moving home in May saw their mortgage interest payments accounting for the lowest proportion of their income in 35 years, according to new data from the Council of Mortgage Lenders. And house purchase lending rose from a year ago for the 11th consecutive month.
But with the challenging economic backdrop, government spending cuts and forthcoming tax increases the positive trend is likely to tail off in the second half of this year. Monthly comparisons with a year earlier will probably be near zero or modestly negative over the coming months.
This is because we had an improving market in the second half of 2009 as the stamp duty holiday came to an end.House purchase lending rose modestly in May. The 42,000 loans (worth £6 billion) were up 2% in volume and 3% in value on April and 15% in volume and 28% in value from a year earlier.
Remortgaging activity recovered a little as well in May. The 26,000 loans (worth £3.2 billion) were up 6% by volume and 10% by value on May but down 14% by volume and by value on a year earlier.
Table 1: Loans for house purchase and remortgage
| Number of house purchase loans |
Value of house purchase loans £m |
Number of remortgage loans |
Value of remortgage loans, £m |
|
| May 2010 | 42,000 | 6,000 | 26,000 | 3,200 |
| Change from April 2010 | +2% | +3% | +6% | +10% |
| Change from May 2009 | +15% | +28% | -14% | -14% |
There were 14,800 loans (worth £1.8 billion) advanced to first-time buyers in May, up from 14,500 (worth £1.7 billion) in April and 13,700 (worth 1.5 billion) in April 2009. Their characteristics have changed little in recent months. In May they borrowed an average of 3.14 times their income and 75% of the value of their property but interest payments accounted for only 13.2% of their income, the lowest amount since the 13% of March 2004.
Table 2: First-time buyers, lending and affordability
| Number of loans |
Value of loans £m |
Average loan to value |
Average income multiple |
Proportion of income spent on interest payments |
|
| May 2010 | 14,800 | 1,800 | 75% | 3.14 | 13.2% |
| Change from April 2010 | +2% | +6% | 75% | 3.16 | 13.5% |
| Change from May 2009 | +8% | +20% | 75% | 3.04 | 14.9% |
The numbers of home movers increased as well in May. The 27,100 loans (worth £4.2 billion) were up from 26,500 (worth £4.1 billion) in April and 22,800 (worth £3.2 billion) in May 2009.
The characteristics of these borrowers have also barely changed recently but they continue to benefit the most from low interest rates with interest payments accounting for only 9.5% of their income in May, the lowest percentage in 35 years of available data.
Table 3: Home movers, lending and affordability
| Number of loans |
Value of loans £m |
Average loan to value |
Average income multiple |
Proportion of income spent on interest payments |
|
| May 2010 | 27,100 | 4,200 | 67% | 2.85 | 9.5% |
| Change from April 2010 | +2% | +2% | 67% | 2.84 | 9.6% |
| Change from May 2009 | +19% | +31% | 69% | 2.74 | 11.4% |
CML director general Michael Coogan commented:
“House purchase lending continues its recovery but positive comparisons with equivalent months a year ago look unlikely to continue. Activity picked up in the second half of 2009 due to the stamp duty holiday but with the government’s austerity drive picking up momentum we are unlikely to see a repeat of those buoyant numbers this year. Our forecast for gross lending in 2010 may now be looking a little optimistic.”
The Council of Mortgage Lenders does not publish statistics for mortgage approvals. The data in our monthly Regulated Mortgage Survey and gross lending press releases relate to mortgage advances only. A mortgage approval is the firm offer to a customer of a specific amount of credit secured against a particular property. A mortgage advance is the total amount of loan actually provided to the buyer, by the lender. Please see the mortgage statistics timeline on our website for further information.
