Despite mortgage lending going up during May, the market remains subdued.
According to UK Finance, the new trade association that has replaced the Council of Mortgage Lenders, first-time buyers borrowed £4.7 billion, up 12% on April month and 7% on May 2016.
Buy-to-let lending totalled £2.9 billion in May, up 16% on April and 12% compared to May last year.
Despite the annual rise, this is largely a result of a distortion in the market from buyers bringing forward transactions to beat the 3% stamp duty increase introduced in April 2016.
Home movers borrowed £6.2 billion in May, up 11% on April and 22% for the year.
Remortgage activity went up by 10% to £6.2 billion.
Paul Smee, head of mortgages at UK Finance, said: “The apparent strong growth in mortgage lending in May might flatter to deceive. The relative weakness in lending last May following the stamp duty changes makes comparisons misleading.
“The seasonally adjusted data shows a less buoyant lending picture, with home buying activity remaining relatively unchanged month-on-month and remortgage lending gradually decreasing each month since January.
“In the summer months, we expect home buying activity to continue with an even split between first-time buyers and home movers but in greater numbers than in the winter months; we expect buy-to-let to remain subdued compared to its recent 2015 peak.”
Buy-to-let lending has had a weak start to 2017 and the sector’s contribution to overall net mortgage lending has fallen considerably over the last year.
The Government increased stamp duty on second homes by 3% in April 2016 to help free up property for first-time buyers.
Mortgage interest relief for residential buy-to-let properties has been reduced to the base income tax rate, which is 20%. Landlords were previously able to claim tax relief on the top rate of tax of up to 45%.
The change means landlords will no longer be able to deduct mortgage interest payments or any other finance-related costs from their turnover before declaring their taxable income.
Shaun Church, director at mortgage broker Private Finance, said that while lending rose in May, the “market remains subdued”.
“The lack of available housing continues to limit lending volumes, and while supply-side issues persist we are unlikely to see a significant increase in lending. A sluggish remortgage market has also contributed to disappointing overall figures, with the CML reporting that on a seasonally adjusted basis lending for remortgage has fallen every month since January.
“There are some clear positives to be taken from these figures, however. Lending remains stable in spite of wider political and economic uncertainty, suggesting the market has robust foundations. Demand from buyers continues to be supported by low mortgage rates and a growing number of products.”
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