High LTV lending reaches six year peak

The level of high loan to value borrowing was at its highest for six years in February, the latest Mortgage Monitor from chartered surveyor e.surv has found.

Lending to those with a small deposit rose by 74 per cent since the previous February, climbing to 11,138 loans, also representing a 6 per cent increase on January.

It was the highest monthly number of high LTV loans since April 2008 (when there were 12,489). And the average LTV climbed to 63.5 per cent as a result – its highest level since August 2007.

House purchase lending rose 37 per cent year-on-year in February 2014, from 52,023 approvals to 71,396 approvals.  It was the strongest February for house purchase lending since the financial crisis (2007). However, on a monthly basis, the number of house purchase approvals fell 7.2 per cent from 76,947 in January 2014, in part due to adverse weather conditions discouraging movers in the short term.

Richard Sexton, director of e.surv chartered surveyors, explains: “A bumper crop of high LTV deals is tempting more buyers back to the market. Banks are far more willing to lend to borrowers with a limited savings pot. New buyers are keen to get on the ladder before house prices rise beyond their reach, and they are utilising the Help to Buy Scheme to get an initial foothold. The result, the number of monthly home loans is slowly winding its way back into pre-recession territory.

“The countdown to the introduction of MMR regulations has begun. The new rules will demand rigorous stress testing of buyers, which could further tighter regulation, and could make it more difficult to get on the ladder. We are seeing both banks and buyers pushing ahead with lending ahead of this cut-off.”

More first-time buyers

There were 14,993 loans on typical first-time buyer properties – with a purchase price of £125,000 or under – in February 2014, a quarter more (+25 per cent) than in February 2013. On a monthly basis, home loans on first-time buyer stock increased 3 per cent from 14,620, as first-time buyers continued driving the market forward.

However, with house prices rising quickly, the supply of London first-time buyer stock is becoming rapidly depleted. The average purchase price in London was £282,537 in January, according to the latest LSL First Time Buyer Tracker. The average first-time buyer in London must now save a deposit of £64,160, with the average purchase price £282,537.

Data from estate agency chains Your Move and Reed Rains showed the average first-time buyer purchase price rose by £5,000 in the month to January.  The average purchase price climbed 16 per cent over the space of twelve months, reaching £155,832. Meanwhile, deposits rose as a proportion of income for the first time in seven months, as real wages stayed flat. Despite this, the number of first-time buyers rose by a third year-on-year in January, as a result of the increase in high LTV lending, which is propping up the market despite the price rises.

Sexton explains: “First-time buyers are the life-blood of the market. With unemployment falling and real wages potentially set to rise in the next few months, more young buyers are choosing to get onto the property ladder. But we still need to do more to support the bottom of the market. The demand for property far outstrips the supply of new homes, which is creating a dog-eat-dog property market in which new buyers are placed under even more strain. If not handled correctly, rising prices could effectively remove the bottom rung of the property ladder. We need much more home-building to keep the market accessible.”

North-South divide in high LTV lending

There was a prominent north-south divide in high LTV lending in February. The North East & Cumbria (25 per cent), North West (24 per cent) and Yorkshire (24 per cent) all contained a higher proportion of high LTV borrowers than the UK average (16 per cent), while London (6 per cent) and the South East (10 per cent) contained a lower proportion.

Sexton concludes: “Help to Buy is needed the length and breadth of the country. In the North, buyers typically have less equity, and they are using the scheme to help them access the market with a smaller deposit saved. But Help to Buy is also essential in the South. House prices are painfully high in London and the South East, meaning buyers must save a large pot of money to qualify for a loan. Without high LTV lending, the capital could become the preserve of the cash-rich only.”