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Steep increase in mortgage lending

Written by on 19 May, 2010

Figures show that there was an impressive rise in mortgage lending in the month of March 2010. The latest report from the Council of Mortgage Lenders (CML) shows that activity in the housing market bounced back during the month, with a 45% increase on mortgage lending compared to the same period last year.

The results mean that it is the ninth consecutive month of year-on-year growth, and a steep 25% rise in lending from February, giving a positive outlook for the housing market after a difficult start to the year. The high rise in lending suggests it is recovering after a slow start thanks to the end of the stamp duty holiday and a hard winter.

Around 45,000 mortgages were lent for house purchase during March 2010, which is up from 36,000 in February, the CML reports. The loans were worth a collective £6.3 billion, a 24% increase in value since February, and bring a welcome rise in figures after a tough first quarter as a whole. Only 112,000 loans (a value of £16.1 billion) were advanced in the first quarter of the year, compared with 171,000 – worth a massive £23.3 billion – in the last quarter of 2009.

According to figures, first-time buyer activity is rebounding faster than that of home-movers, with 17,300 mortgages loaned to first timers in March, worth £2 billion. This was a 27% increase on February and a 42% increase on March 2009. Another 27,500 loans were paid out to home-movers, with a value of £4.3 billion; a 24% rise on February and a 49% rise on March of last year, and a 65% increase in value. About 46% of people taking out a mortgage chose a fixed rate loan in March, down 60% from the last quarter of 2009.

On average, first-time buyers were borrowing 76% of the property price for the second month running, figures show. This is the only time that first-time buyers have been putting down a deposit of lower than 25% for two months in a row since January 2009. However, CML have said it is too early to indicate whether it ‘genuinely reflects a tentative sign of easing’, with deposit constraints remaining strict in all areas of lending.

First-time buyers are still struggling, as the best priced deals are available to those with larger deposits, but in the first quarter they needed only 13.3% of their income to cover interest payments – a record low since 2004. This is compared with the slightly better off home movers who only required less than 10% of their income to cover costs – the same as February 2010 and the lowest amount since the start of CML’s data reports in 1974.

Despite the sharp rise in mortgage lending for the month, remortgaging rates were down, with a 29% decrease year-on-year, the 23rd consecutive annual fall. During the first quarter only 74,000 remortgage loans were sold, worth £9.3 billion – down from 89,000 in the three months leading to December 2009. These reports demonstrate a robust recovery of the house purchasing market but a definite decline in remortgaging activity.

However, the notable changes compared to the end of the previous quarter have been downplayed by the Council for Mortgage Lenders as no trend can really be derived from the figures, given the distortion caused by people hastily buying lower priced properties before the end of the stamp duty holiday in December 2009.

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