Mortgage borrowing fell in UK in October with buy to let sector still weak
12-20-2016
Europe
Home owners in the UK borrowed £10.5 billion to buy a house in October, down 8% month on month and 11% year on year, according to the latest figures from the Council of Mortgage Lenders.
Overall they took out 57,800 loans, down 8% on September and 13% on October 2015, but it is the first time buyers and home movers sector which have weakened.
First time buyers borrowed £4.5 billion, down 8% on September and 2% on October last year while home movers borrowed £5.9 billion, down 9% on a month ago and 18% compared to a year ago.
But remortgage activity at £6.1 billion was up 11% on September and 7% compared to a year ago while landlords borrowed £3 billion, up 7% month on month but down 21% year on year and the buy to let sector is still regarded as under par and unlikely to see a resurgence due to changes being put in place in 2017.
‘Buy to let house purchase lending remains weak following the change to stamp duty on second properties in April. With lenders now tightening affordability criteria ahead of the Prudential Regulation Authority’s stress tests and the forthcoming tax relief changes next year, these lower volumes are likely to be the new normal, said Paul Smee, director general of the CML.
‘Home owner and buy to let remortgage lending, however, has recovered and is running at its strongest levels since 2009. This appears to be linked to borrowers taking advantage of the re-pricing of mortgages following the base rate cut,’ he added.
The figures from the CML also show that the amount borrowers are paying as a percentage of their household income to service capital and interest rates reached an another historic low this month for both first time buyers and home movers at 17.6%.
Affordability metrics for first-time buyers saw the typical loan size remain unchanged from September at £133,200 in October. The average household income decreased slightly from £40,200 in September to £40,000 in October. This meant the income multiple went from 3.53 to 3.56.
The average amount borrowed by home movers increased to £171,700 in October from £171,000 in September, while the average home mover household income decreased slightly to £54,900 from £55,100. The income multiple for the average home mover remained the same month-to-month at 3.26.
The figures suggest that the mortgage market is still finding its feet after a tumultuous year, according to Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA).
‘It has had to cope with significant changes to stamp duty along with the ongoing ramifications of Brexit. Considering all that it has had to contend with, the market has proven itself to be remarkably robust, with lending figures roughly the same as they were at the beginning of the year,’ he said.
‘The remortgage market has taken off this year with the total value of such loans now at their highest rate since the beginning of 2009, as consumers continue to take advantage of the historically low interest rates. However, with swap rates rising, now is probably a good time to remortgage as the best deals might not be around for too much longer. The strong remortgage figures will come as no surprise to IMLA’s members, who earlier this year predicted that the remortgage market had the best prospects for growth,’ he explained.
‘The buy to let market has clearly been badly affected by the raft of changes that have been made this year; changes which may yet have unintended consequences. With a slowdown in buy to let lending, it is likely that the supply of high quality housing in the private rented sector could suffer. This is not good news for those renting through choice or those forced to do so while they wait to get onto the property ladder,’ he added.
Andy Knee, chief executive of LMS, believes that the strong remortgage market suggests that home owners are taking advantage of low rates to secure reduced monthly repayments and they also think they should do this now before rates rise.
He pointed out that recent research from LMS recently found 32% of remortgagors expect rates to rise in 2017. ‘While nothing is certain, those looking to remortgage should do so while the market is fuelled by increased affordability and low rates,’ he added.