HPI – Price growth up 5.8% in February

Lending to home buyers in the UK ticked up in February on a non-seasonally adjusted basis by 6% year on year and was 2% higher than the same month in 2016, the latest figures show.

The data from the Council of Mortgage Lenders (CML) also shows that lending to first-time buyers also increased by 6% year-on-year and 12% month on month and home buyers borrowed £8.9 billion and first time buyers £3.8 billion.

Home owner remortgage activity was down 26% by value and 23% by volume month-on-month but year-on-year up 8% by value and 9% by volume.

Buy-to-let lending is still depressed, down 13% by value and 12% by volume month-on-month and compared to February 2016, the number of loans decreased 26% and the amount borrowed decreased by 13%.

Looking on a seasonally adjusted basis, first-time buyer and home mover activity increased by value month-on-month and year on year, buy to let house purchase and remortgage activity remained unchanged by volume and by value month on month, but decreased compared to February last year 44% by value and 42% by volume.

“Seasonal factors traditionally keep the market quieter in winter months, but 2017 began relatively strong on the house purchase side. Borrowers took out more loans to purchase a home in the first two months of 2017 than any year since 2007. This is down to strong first time buyer activity which has consistently matched home mover borrowing over the past six months, a trend not seen in the UK for 20 years,” said Paul Smee, director general of the CML.

“House purchase activity on the buy to let lending side remains weak. This trend is expected to continue because of the tax changes from April and because lenders are tightening affordability criteria in response to PRA mandated stress tests,” he added.

A breakdown of the figures show that there were more loans advanced for house purchase in February than any February since 2007, although due to the seasonal dip in activity, borrowing was relatively low compared to monthly activity the past 12 months.

The proportion of household income used to service capital and interest rates continued to be near historic lows in February for both first time buyers and home movers at 17.4% and 17.6% respectively.

Affordability metrics for first time buyers saw the typical loan size decrease slightly from £132,300 in January to £132,100 in February. The average household income also decreased to £40,000 from £40,200. This meant the income multiple went from 3.53 to 3.54.

The average amount borrowed by home movers in the UK increased to £176,000 from £175,300 the previous month, while the average home mover household income increased slightly month on month from £54,900 to £55,000. The income multiple for the average home mover was unchanged at 3.34.

Buy-to-let activity was driven by buy to let remortgage lending which accounted for over two thirds of total lending. The number of loans for buy-to-let house purchase advanced in February was at a 10 month low in part due to the traditional seasonal dip in activity in the winter months.

Ishaan Malhi, chief executive officer of online mortgage broker Trussle, believes that the lending market is looking livelier. “‘A surge in first-time buyer activity will be fuelled by many who will be looking to take advantage of the momentary slowdown in house price growth. Meanwhile remortgaging activity has fallen slightly from the very high level we saw in January, but is still 9% higher in volume than February 2016,” he said.

“It seems that many existing borrowers are taking advantage of low interest rates to secure a better deal on their repayments, a saving that could make a real difference to households at a time of low wage growth and rising inflation. Until the Bank of England does finally announce a rate rise, I expect to see remortgaging levels continue to rise year on year,” he pointed out.

The buy-to-let figures should be seen against the unusual context of a year ago when there was rush from investors to buy before the new 3% rate of stamp duty on additional homes came, according to Steve Olejnik, chief operating officer of Mortgages for Business.

“Year on year comparisons in buy-to-let mortgage lending are made to look unfavourable as a result of the huge rush in activity in the first quarter 2016. In reality, the buy to let market has weathered challenges like the European Union referendum and the PRA’s changes relatively well, and the number of new loans remained stable between January and February,” he explained.

“We believe that a sustainable level of buy to let lending is around 15% of overall mortgage lending, and we are currently seeing the market rebalance towards this, with lending to home buyers continuing to grow from month to month. Successive policy changes have been a key driving force behind this fall in buy to let’s share,” he pointed out.

“Buy-to-let lending is likely to be more subdued this year than it was in 2016, but it still remains a good proposition for investment, particularly compared to more volatile asset classes like bonds and equities. It will take a while for landlords to adjust to the new environment of increased stamp duty, tougher stress tests and the curtailment of tax relief, but the market still offers strong returns for those who take a sensible and measured approach to their portfolios,” he added.


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