London property market running out of steam as number of mortgages for home buyers falls 16% in a year
05-31-2015
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Fall coincides with tougher mortgage lending checks
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Reduces demand from buyers and could bring prices lower
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Fall despite cheapest ever loans and inflation-beating wage rises
By Ed Monk for Thisismoney.co.uk
Further evidence of weakness in the London property market emerged today as mortgage lenders reported a sharp fall in lending to house buyers in the capital.
The Council for Mortgage Lenders said there were 17 per cent fewer loans for house purchase in Greater London during the first quarter of the year, at 17,300, compared to the final quarter of 2014.
The tally of completed mortgages was also 16 per cent down on the same period last year.
Capital punishment: Buyer numbers are falling away in face of sky-high prices and tougher lending checks
By value, loans totaled £4.9billion in the first quarter, down 16 per cent compared to the fourth quarter last year and down 11 per cent on the first quarter of 2014.
Lending to both first-time buyers and home-movers fell. First-time buyer mortgages were down 14 per cent by volume and 11 per cent by value in the first quarter compared to last year.
London home movers took out 18 per cent fewer loans over the year, with the value of those loans falling 11 per cent.
The was net positive lending for those remortgaging, which was 2 per cent higher by volume and 7 per cent higher by value compared to the first quarter of 2014.
The trend in other parts of Britain was also down with all regions recording falls in lending compared to a year ago (see table).
London often leads the way in property market activity with rises in lending and prices there later spilling out into the wider South East and beyond.
| Change on Q4 2014 | Change on Q1 2014 | |||
|---|---|---|---|---|
| By volume | By value | By volume | By value | |
| Wales | -26% | -25% | -9% | -2% |
| Scotland | -20% | -13% | -1% | 15% |
| Northern Ireland | -33% | -38% | -11% | -4% |
| Northern | -25% | -25% | -16% | -2% |
| Yorkshire and Humberside | -26% | -27% | -11% | -6% |
| East Midlands | -28% | -27% | -11% | -5% |
| East Anglia | -30% | -30% | -17% | -11% |
| South East | -26% | -25% | -12% | -6% |
| South West | -28% | -26% | -13% | -7% |
| West Midlands | -25% | -24% | -9% | -2% |
| North West | -20% | -20% | -5% | 1% |
After widespread property price falls during the financial crisis it was London homes that first began to rise in value. Other regions took longer to begin rising again but now all areas of the country are seeing year-on-year price rises.
The latest fall in London lending represents reduced demand in the market. It comes despite generally benign conditions for home-buyers. Mortgage rates for all types of loans have been falling and for those with healthy deposits the best rates are edging down towards 1 per cent.
Yorkshire Building Society last week launched a mortgage for those with at least a 35 per cent deposit costing just 1.07 per cent for two years, the lowest rate ever.
Meanwhile, wages have been rising ahead on inflation - 2.2 per cent a year for regular wages versus a 0.1 per cent fall in the Consumer Price Index, according to the most recently released figures.
On the slide: Total number of home-owner house purchase loans advanced in Greater London per quarter
That leaves more money in the pockets of buyers to make repayments and save for a deposit.
However, buyers are struggling with average prices in the Capital that are much higher than a year ago. Many boroughs have reported double-digit price rises in the past year, taking properties out of the reach of buyers and raising the value of deposits required by first-time buyers.
The latest lending number may have also been impacted by the election, with buyers sitting on their hands until a result was in.
Prices may continue to rise if the fall in buyers is matched by a fall in sellers, although Land Registry figures showed month-on-month prices falling in March in eight of 33 London Boroughs.
There also appears to be a significant impact on mortgage demand from tougher lending rules introduced in April last year.
The Mortgage Market Review requires lenders to better establish the finances of buyers, including checking that they could withstand repayments if the Bank of England base rate were to rise by 3 percentage points.
This would take the typical mortgage rate to near 7 per cent.
The CML figures show the number of mortgages issued for house purchase in London falling from the third quarter of 2014 onwards (see graph). A loan is logged in the CML data at the end of the purchase process when the money is advanced, a process that could take up to six months.
This means there will be loans in the CML figures for the third quarter of last year that were approved under the old lending regime. The fall in loans after that therefore coincides with introduction of the MMR checks.