Fixed-rate loans became more popular in April suggesting that borrowers are looking for security over future mortgage payments, according to the Council of Mortgage Lenders. The proportion of borrowers taking out fixed-rate products increased to 59% in April, from 54% in March. This is the largest proportion since December last year.
Council of Mortgage Leanders – Press Release – 12 June 08
There are clear signs of lenders tightening lending criteria in the face of ongoing funding constraints and a softer house price outlook. The average first-time buyer put down a deposit of 13% in April, which is the highest level in over 3 years. First-time buyers typically took out loans for 3.3 times their income, down from 3.35 in March. The average home mover loan was 2.96 times their income, down from 3 in March.
There was a monthly increase in lending volumes in April, although activity remains weaker than a year ago. Gross lending increased by 8% in April to £26.1 billion, from £24.1 billion in March, after two consecutive months of decline. This was 5% down from April 2007, but this annual rate of decline was lower than in recent months; gross lending in March 2008 was 24% lower than March 2007.
There were 50,700 loans for house purchase worth £7.7 billion in April, up 9% in volume and 10% in value from March. There were 18,500 loans to first-time buyers, up 4% from March but 36% lower than April last year. There were 32,300 loans to home movers, up 13% from March and 38% lower than April last year.
Remortgaging accounted for 42% of gross lending in April and has continued to perform better than house purchase as large numbers of borrowers exit fixed-rate mortgages. There were 83,000 loans for remortgage worth £11 billion, up 14% in volume and 11% in value from March.
CML director general, Michael Coogan commented:
“Monthly house purchase lending volumes continue to be lower than last year’s levels and there will be a further weakening in coming months as recent approvals data has shown.
“The squeeze on mortgage funding has led many lenders to tighten their lending criteria. While tighter criteria make it more difficult for some borrowers to obtain a mortgage, they also reduce risk in a slower housing market.
“There has been a resurgence of fixed-rate lending as borrowers are seeking certainty. This trend is likely to continue as the anticipation of future Bank base rate cuts has diminished.”
The Council of Mortgage Lenders’ members are banks, building societies and other lenders who together undertake around 98% of all residential mortgage lending in the UK. There are 11.8 million mortgages in the UK, with loans worth over £1.2 trillion.