First-time buyers in Greater London in total borrow 27% more in the second quarter than a year ago.
New CML data on the characteristics of lending in Greater London in the second quarter of 2014 show the market grew in both house purchase and remortgage activity compared to the previous quarter and the same period last year.
First-time buyer loans totalled 12,300 in the second quarter in London – 4% up on the previous quarter, and 17% up on Q2 2013. First-time buyers in the period borrowed £3 billion – up 10% on the previous quarter and 27% on Q2 2013.
There were 9,000 home-mover loans in the second quarter, up 1% on the previous quarter and 7% on Q2 2013. Total value of these loans was £3 billion, up 9% on the first quarter and 26% on the second quarter 2013.
Remortgage lending in the quarter showed growth in London compared to the previous quarter and the same quarter in 2013.
Lending for home-owner house purchase
House purchase lending to home-buyers increased quarter-on-quarter in London totalling 21,300 loans, up 3% compared to the first quarter and the value of these loans totalled £6 billion, a rise of 9% on the first quarter. Compared to the second quarter of 2013, the number of loans increased 13% and value of these loans increased by 27%.
Lending to first-time buyers
First-time buyers typically borrowed 3.90 times their gross income, more than the 3.83 in the previous quarter and the UK average of 3.46. The typical loan size for first-time buyers was £212,000 in the second quarter, up from £200,000 in the previous quarter. The typical gross income of a first-time buyer household was £55,000 compared to £52,500 in the first quarter.
Due to higher house prices within London compared to the UK overall, there was a continued shift in the mix of properties bought by first-time buyers in London towards more expensive properties. In the second quarter, 63% of first-time buyers bought properties priced at more than £250k, up from 57% in the first quarter and 51% in the same period last year. This was significantly higher than the UK overall level of 17%.
First-time buyers in London have tended to put down larger deposits than in the UK – there was a period in 2009 and 2010 when there was no difference and typical deposits increased to 25% in London and in the UK, but whereas in the UK the typical loan-to-value has drifted up to 80%, in London it has remained at 75%.
In the second quarter, first-time buyers paid 21.1% of gross monthly income towards capital and interest payments, a higher proportion of income than 20.7% in the first quarter.
Lending to home movers
In the second quarter of 2014, lending to home movers showed similar, albeit slightly lower, growth patterns in Greater London to first-time buyer lending. Home mover affordability changed fractionally, with home movers typically borrowing 3.66 times their gross income compared to 3.60 in the first quarter and the 3.09 in the UK overall. The typical loan size for home movers was £151,000 in second quarter, up from £147,000 in the previous quarter. The typical gross household income of a home mover was £51,300 in second quarter compared to £50,200 in first quarter.
Home movers in Greater London spent 17.2% of their gross income to cover monthly capital and interest payments, slightly changed from 17.3% in Q1 and less than the 18.7% UK average.
Lending to home owners for remortgage
The number of loans advanced for remortgage in Greater London, unlike the UK overall, increased both quarter-on-quarter and year-on-year. Home-owner remortgage lending in the second quarter totalled 10,800 loans advanced in the period, which was an increase of 3% on the first quarter and 5% on the second quarter 2013. These loans totalled £2.8bn in value, an increase of 7% quarter-on-quarter and 22% compared to Q2 2013.
Paul Smee, CML director general, commented:
“It is good to see continuing strong demand from first-time buyers but it is a concern that trends in affordability seem to be tightening. This is an especial challenge in London. As for the introduction of new FCA mortgage market rules, these do not appear to have hindered the market, although the full effects of the new rules may take some time to emerge.”
The Council of Mortgage Lenders’ members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.1 million mortgages in the UK, with loans worth over £1.2 trillion.