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Mortgage approvals for people buying a home jumped to a four-month high in June as the market recovered from the introduction of new lending rules that saw an increase in the time it takes to secure a mortgage offer.
A total of 67,196 loans were agreed for people buying a property during the month, the highest level since February, according to figures published by the Bank of England.
Pipeline loans for people remortgaging to a new deal also increased, rising to 31,682, the highest number since March.
The jump in mortgage activity during June suggests the lending market has recovered from the blip it experienced in April and May due to the introduction of the Mortgage Market Review (MMR).
The rules, which included tough new affordability criteria, led to an increase in the time it takes to secure a mortgage offer.
Mortgage brokers and commentators warned at the time of the rules’ introduction in late April that they were likely to lead to a temporary fall in mortgage approvals while lenders got to grips with new systems and processes.
Net lending, which strips out repayments and people remortgaging to a new deal, fell slightly in June, according to the Bank.
Mortgage advances on this measure totalled £2.08bn during the month, down from a spike of £2.29bn in May, but still above the recent six-month average of £1.9bn.
Samuel Tombs, senior UK economist at Capital Economics, said: “The rise in the number of mortgages approved for new house purchase to a four-month high suggests that the disruption caused by the introduction of the Mortgage Market Review regulations in April has faded quickly.
“Looking ahead, further rapid rises in employment and still low mortgage interest rates should stimulate further demand for mortgage lending.
“However, with lenders set to face tough stress tests later this year and action from the Financial Policy Committee in June perhaps dampening expectations of future house price growth, the recovery in mortgage lending still looks likely to be a gradual affair.”
The figures come the day after data from the Land Registry showed house price growth in England and Wales stalled during June.
Property values fell in seven regions, with Yorkshire and the Humber seeing the biggest drop of 1.3 per cent, while prices fell by 1 per cent in both the East Midlands and North East.
Even in London, which has been the main driving force for the market, prices edged ahead by just 0.1 per cent during June.
But across England and Wales as a whole, house prices were still 6.4 per cent higher than they had been a year earlier at an average of £172,011.
The figures add to growing evidence that some of the heat is coming out of the property market, as more homes are put up for sale, easing the mismatch between supply and demand.
Surveys from estate agents also suggest that potential buyers are becoming more cautious in the face of high house prices and concerns about future increases in interest rates.
Recent strong price growth has left the average UK home costing £260,311, according to Zoopla.
The number of people getting on to the property ladder hit a seven-year high during the first half of the year, figures showed today.
An estimated 144,500 people bought their first home in the six months to the end of June, the highest number for the first half of the year since 2007, before the financial crisis struck.
The total was 25 per cent up on the same period of 2013, according to mortgage lender Halifax.
It was also the third consecutive year in which first-time buyer numbers have surpassed the 100,000 mark during the six months to June.
The increase in first time buyers outstripped the improvement in the number of existing homeowners who bought a property, with the number of next time buyers increasing by only 20 per cent during the period.
As a result, first time buyers accounted for 46 per cent of all home purchases during the six months, the highest proportion since 2000.
Despite recent strong house price inflation, low interest rates helped to keep mortgage repayments affordable for people buying their first home.
The typical person getting on to the property ladder had to devote 31 per cent of their post-tax income to mortgage repayments.
Halifax said this figure was significantly below both the peak of 47 per cent of earnings reached during the first half of 2007 and the long-term average of 34 per cent.
But first time buyers did have to put down significant deposits, with these averaging £31,129 – 9 per cent more than they put down a year earlier.
The size of the deposit as a proportion of the purchase price has almost doubled since the financial crisis struck, to stand at 19 per cent during the second quarter of 2014 compared with 10 per cent in 2007, as lenders withdrew high loan-to-value mortgages.
The average age of a first time buyer has also increased, rising to 30 years old in 2014, compared with 28 in 2009.
Craig McKinlay, mortgages director at Halifax, said: “First time buyers are an important segment on the housing market, accounting for 46 per cent of home purchases in the first six months of the year.
“The resurgence in the number of first time buyers getting on to the housing ladder has been buoyed by improving economic conditions, rising employment levels as well as Government schemes such as Help to Buy.”
The typical first time buyer paid £167,137 for their home during the first half of the year, putting 60 per cent of people above the £125,000 threshold at which Stamp Duty kicks in.
Unsurprisingly, there were significant regional variations, with first time buyers in London paying the most for their property at an average of £306,354.
This figure was more than £100,000 above those in the South East, which had the second highest purchase price at an average of £203,826.
The North was the least expensive region in which to get on to the housing ladder, with first-time buyers paying an average of £110,410 there, meaning 72 per cent of them did not have to pay any stamp duty.
People buying their first home in London had to save the most for a deposit at £76,435, while those in the North West put the least down at £16,532.
Mortgage lending rose by 17 per cent during June, but the pace at which it is increasing showed signs of slowing, figures revealed today.
A total of £17.5bn was advanced during the month, 4 per cent more than in May and 17 per cent above the level for June 2013, according to the Council of Mortgage Lenders.
But the group pointed out that while the year-on-year growth level was still strong, it was softer than the figures seen earlier in the year.
Lending rose by more than 40 per cent in both January and February compared with the same month of 2013 – more than double the increase seen in June.
Bob Pannell, CML chief economist, said: “The macro-prudential interventions announced by the Financial Policy Committee in late June are finely calibrated and precautionary, but could nevertheless reinforce April’s Mortgage Market Review in tipping the UK towards a more conservative lending environment.
“It is difficult to gauge the short-term direction for house purchase activity and mortgage lending more generally, given unknown regulatory impacts and uncertainty as to when the first in a series of interest rate increases will take place.”
Recent strong house price inflation has led to concerns that a bubble may be building up in the property market, particularly in London where annual growth hit a record 20.1 per cent in May.
The rises have left the average cost of a home in the UK standing at £260,311, according to Zoopla.
But commentators have been quick to point out that while the property market recovery has been strong in London and southern regions, it is only just beginning to take off in other areas of the country.
The Royal Institution of Chartered Surveyors has also said demand from potential buyers is beginning to moderate, while more properties are being put up for sale, helping to ease the previous mismatch between supply and demand.
Meanwhile, the Bank of England’s Trends in Lending survey showed a fall in the number of mortgages approved for house purchase during the three months to the end of May, amid reports of a slowdown in housing market activity.
It added that the introduction of the Mortgage Market Review may also have contributed to the drop as lenders introduced new processes and trained their staff.
There was also an increase in the cost of two-year fixed rate mortgages during the period on the back of speculation about when interest rates would start to rise.
The average rate charged on a two-year fixed rate deal with a loan to value (LTV) ratio of 75 per cent rose by 0.19 per cent during the three months, while the same mortgage with a 90 per cent LTV increased by 0.12 per cent.
The Bank said swap rates, upon which fixed rate mortgages are based, had risen by a similar amount during the three months.
It added that some major lenders expected mortgage rates to continue increasing during the rest of the year, partly due to rising swap rates.
Demand for mortgages from people buying a house increased “significantly” during the three months, and lenders expect this trend to continue going forward.
There was also a slight increase in mortgage availability during the period, particularly for people looking to borrow 90 per cent or more of their property’s value.
Booming property prices could trigger a fresh recession as households become increasingly indebted, the Governor of the Bank of England has warned.
Mark Carney said a property price bubble remained the biggest risk to the UK’s economy in the medium term.
Appearing before the Treasury Select Committee, he warned that as property prices rose, households could become overstretched financially as they struggled to buy a home.
He added that if households took on high levels of mortgage debt, they would have less money to spend on other things, hitting consumption and posing a danger to the economy.
He said: “What happens if households are borrowing at high multiples is they have to economise on everything else in order to pay their mortgages.
“And if enough people are highly indebted, that has a big macroeconomic impact. It can tilt the economy back into recession, and we start from a position of vulnerability.
“There is the possibility that currently responsible lending standards become irresponsible to reckless.”
Carney defended the Financial Policy Committee’s recent decision to limit the volume of mortgages lenders could advance to people borrowing more than 4.5 times their income to 15 per cent as an “insurance policy” against a rise in high loan-to-income mortgages.
But he added that it had stopped short from banning these loans, as they did have a role to play, particularly for first-time buyers whose incomes were likely to rise in the future.
Carney added that the Bank would continue to take steps to ensure mortgage lending did not become “reckless” if necessary.
His comments came hours after Government figures revealed that house prices rose at their fastest rate for four years during May at 10.5 per cent, with annual price growth reaching a record 20.1 per cent in London.
They also showed that the average cost of a property bought by a first-time buyer had crossed the £200,000 threshold.
The important Treasury Select Committee hearing came on the day of a major cabinet reshuffle, deflecting some media coverage over Carney’s warning.
There have been growing concerns that a bubble could be building up in the property market, particularly in the capital.
But recent data has suggested that the market may be beginning to slow naturally in London, as would-be buyers bulk at the current high prices being demanded by sellers, with prices falling in some boroughs.
Potential buyers are also reported to have become more cautious following warnings from the Bank of England that interest rates could start rising sooner than previously expected.
The Royal Institution of Chartered Surveyors also recently reported that more homes had begun to come on to the market, as sellers were keen to cash in on recent strong price gains.
At the same, the rate at which new buyers were registering with estate agents is falling, helping to ease the mismatch between supply and demand.
Data released by the Office for National Statistics yesterday also showed that house prices still remain below their pre-correction peak in all areas of the country apart from London, the South East and the East.
Lending to people with small deposits hit a post-credit crisis high in June but remained only a quarter of the level seen before the financial crisis struck, figures have revealed.
Around 10,898 mortgages were approved for people buying a home with a deposit of 15 per cent or less during June, accounting for a fifth of all house purchase loans.
The total was 52 per cent higher than the number of high loan-to-value (LTV) mortgages approved in June 2013, and the highest level since April 2008, according to chartered surveyor e.surv.
But despite the improvement the figure was still well down on the peak of 41,745 mortgages for house purchase that were approved for people with a deposit of 15 per cent of less in February 2007.
High LTV borrowing also accounted for around a third of all loans approved for people buying a property during thismonth.
Richard Sexton, director of e.surv, said: “A glut of high LTV deals has tempted borrowers back to the market, supporting a flood of first-time buyers over the last year.”
But referring to new rules introduced by the Bank of England limiting the amount of high loan-to-income business lenders can do, he warned: “The tides may be about to turn for borrowers.
“High LTV lending may start to tail off in the wake of new regulations.”
The total number of mortgages advanced to all borrowers buying a home fell for the sixth month in a row during June to 61,586, although the figure was still 4 per cent higher than a year earlier.
There were also signs that buyers are struggling to find affordable properties, with only 12,313 loans advanced for homes costing up to £125,000, 13 per cent less than in June 2013.
The situation was particularly acute in London, where the average first-time buyer borrowed 3.83 times their income, compared with 3.39 times across the UK as a whole.
Meanwhile, the Council of Mortgage Lenders said tough new affordability criteria introduced under the Mortgage Market Review had not had a “dramatic” impact on the market.
Paul Smee, director general of the CML, said: “With May lending figures, we get our first glimpse at the effect the Mortgage Market Review has had on lending trends and, at least so far, the impact appears subtle, rather than dramatic.
“First-time buyers and home movers continue to be key drivers in market growth and their activity does not seem to have been noticeably disrupted.
“There was no cliff edge, lenders and intermediaries had been methodically working towards applying MMR changes for months leading up to implementation and the figures appear to reflect this.”
The CML figures showed that there was little change in the income multiples borrowed by either first-time buyers or homemovers following the introduction of the new rules.
But Jonathan Harris, director of mortgage broker Anderson Harris, disagreed, saying it was still too early to say what impact the regulations had had on the market.
He said: “While some lenders were MMR-compliant ahead of the official launch at the end of April, using May data to assess the impact of the new rules is perhaps premature.
“People are still able to take out new mortgages and to remortgage, but it is taking longer and borrowers may find they have to compromise in terms of rates and loan-to-values.
“They may not always be able to get the cheapest rate or highest LTV, depending on their particular circumstances.”
The CML figures showed that the number of mortgages advanced to homemovers in May increased by 8 per cent compared with April to 31,100.
There was also a 9 per cent rise in the number of mortgages advanced to first time buyers at 26,800.
But the remortgage market remained subdued, with just 21,600 loans taken out, 17.9 per cent fewer than during the previous month.