The number of home loans approved in January was at the highest level for seven years, according to the latest Mortgage Monitor from chartered surveyor e.surv.
It was the first time that home loans saw an increase between December and January for twelve years, rising from 52,619 to 65,142 in the respective months.
E.surv believes that two main factors were behind the seasonal anomaly. Firstly, lenders are pushing ahead with lending targets in advance of Mortgage Market Review (MMR) regulations, due to be introduced on 26th April. The regulation will see tighter affordability checks come into play. Although most lenders are well prepared for the changes, they cannot ensure that all intermediaries are equally ready, and may therefore be aiming to get ahead of target as a precaution.
Sitting alongside this is an unprecedented demand for homes. The unemployment rate has fallen to 7.1 per cent, which has spurred action as buyers look to confirm fixed-rate deals before any base rate rise comes into play. The result – non-seasonally adjusted approvals have jumped 75% compared to January 2013.
Richard Sexton, director of e.surv chartered surveyors, explains: “January was something of an anomaly in the mortgage market. We normally witness a January slowdown in the mortgage market, in which borrowers choose to pay down Christmas debt rather than invest in property, but this year both banks and buyers have continued full steam ahead.
“Demand is strong from the top to the bottom of the market. First-time buyers are keen to lock into cheap deals and get on the ladder, especially with recent talk around a potential base-rate rise and the revision of forward guidance. And lenders are actively trying to keep volume high, to get business through the door before MMR puts a cap on the volumes they can process.”
High LTV lending leading the way
The average LTV rose to 62.3 per cent in January 2014 – the highest since August 2007 – as banks continue to lend more to borrowers with smaller deposits. Just under one in seven (14 per cent) of loans were to high LTV borrowers in January – up from one in eight (12 per cent) in December.
The North remained the home of high LTV lending. In the North East & Cumbria, a quarter of all home loans in January were to borrowers with a deposit worth 15 per cent or less of the total value of their property – the highest proportion of any region. The North West and Yorkshire came second and third, with 23 per cent and 21 per cent of home loans in the high LTV bracket in January. London was the region with the smallest proportion of high LTV lending – just 6 per cent.
The Help to Buy scheme is also encouraging more high LTV borrowers to the market. A third of tenants said they were more likely to buy because of the scheme, according to the latest LSL First Time Buyer Opinion Barometer. The research also revealed that the number of first-time buyers hit a six year high of 29,100 in December 2013. The average first-time buyer deposit size decreased 3.6 per cent over the year, as banks increase lending to high LTV borrowers.
