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Mortgage advances to people buying a house fell for the first time in five months during August in a further sign that the property market is slowing down, figures revealed today.
A total of 65,400 loans were advanced to homebuyers in August, 3 per cent less than in July, according to the Council of Mortgage Lenders.
But despite the month-on-month dip, lending levels were still 8 per cent higher by number and 19 per cent higher by value than in the same month of 2013, making it the best August for house purchase lending since 2007.
The drop was most marked among first time buyers, with 28,900 mortgages advanced to people buying their first home in August, 4 per cent less than in July andthe first fall since January this year.
Affordability for first time buyers is becoming increasingly stretched on the back of recent strong house price gains, with the average person getting on to the property ladder borrowing 3.42 times their income, up from 3.37 times their pay 12 months ago.
The deterioration in affordability came despite the fact that the average amount first time buyers borrowed dropped to £126,198 in August, down from £127,500 in July.
But record low interest rates ensured repayments remained affordable, with first time buyers typically spending 19.7 per cent of their total pay on capital and interest mortgage payments, still significantly below the recent peak of 24.8 per cent reached in December 2007.
There was also a dip in remortgage activity during the month, although this is not unusual for the time of year.
There were 4 per cent fewer loans advanced to people moving to a new deal compared with July, while there was also an 11 per cent fall year-on-year.
Paul Smee, director general of the CML, said: “The lending climate had a glass half full, glass half empty feel about it in August.
“On the one hand it saw a decline in all lending types month-on-month, which would suggest a levelling off of the market.
“Yet, on the other hand, we saw the highest August house purchase lending levels since 2007, and the recent Bank of England Credit Conditions Survey expects an upward trend in remortgaging in the final months of the year.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said it was “curious” that remortgaging levels remained so weak despite the historically cheap rates currently available.
He said: “As these are not proving enough of a draw, it is unlikely that numbers will flock to remortgage until an interest rate rise is imminent.
“Some borrowers may be concerned about their ability to remortgage given the new affordability criteria and may find themselves stuck on their lender’s standard variable rate when rates do start to rise.”
The data came as the Royal Institution of Chartered Surveyors said the steam appeared to be coming out of the British property market as demand from potential buyers fell for the third month running, while the number of homes on the market remained broadly flat.
The group said house price momentum slowed to its lowest level since June 2013 in September, with surveyors predicting house prices will rise by 2.1 per cent during the coming year.
Mortgage availability fell to its lowest level since 2008 during the summer as banks tightened their lending criteria, an official report showed today.
Lenders reported a significant drop in their willingness to advance loans during the three months to the end of September, ending eight consecutive quarters during which the availability of home finance had improved.
The fall in lending was driven by banks and building societies changing their appetite for risk and having lower expectations for house prices, according to the Bank of England.
In its Credit Conditions Survey, it added: “Many lenders noted that operational issues associated with the implementation of the Mortgage Market Review had pushed down on credit availability over the summer.”
A number of players also said they had also tightened their lending policies in response to recommendations made by the Financial Policy Committee to help mitigate the risks to the economy that came from a booming housing market.
But despite the dip in mortgage availability during the summer, lenders were confident home loans would become more readily available during the final three months of the year, as they strove to hit their market share targets.
Mortgage availability fell for all loan-to-value ratios, including for those borrowing less than 75 per cent of their home’s value.
Lenders also said they had become less willing to advance money to people with deposits of 10 per cent or less for the first time since the question was introduced in 2013.
Some groups added that they had also introduced policies that restricted lending to people wanting to borrow high loan to income ratios, while many had tightened their credit scoring criteria, leading to a fall in the number of mortgage applications that were approved.
The fall in mortgage availability was matched by a slide in demand during the summer as the booming housing market showed signs of cooling down.
Lenders said demand for home loans fell significantly during the three months, ending the trend seen since the beginning of 2012.
Going forward, mortgage applications are expected to pick up again during the final part of the year, both among those looking to purchase a new home and people remortgaging ahead of a future interest rate rise.
But despite banks and building societies being less willing to lend during the third quarter, the mortgage market remained competitive, with the difference between the interest rates charged to homeowners and the Bank Rate or swap rate upon which the loans are based, narrowing.
This trend is expected to continue during the fourth quarter as banks and building societies compete to meet their lending targets before the end of the year.
There was also a significant fall in the number of people defaulting on their mortgages during the three months to the end of September, and lenders expect a further improvement during the final part of the year.
Recent economic data has already picked up the slowdown in both the mortgage market and the property one.
But Matthew Pointon, property economist at Capital Economics, expects lending to rebound during the fourth quarter, driven in part by higher demand.
He said: “A significant balance of lenders expect to raise the availability of credit over the next three months.
“Furthermore, the demand for mortgages is predicted to rise, and a balance of 10.8 per cent of lenders expect to approve a larger share of applications.
“That is the second largest expectations reading since the survey began in 2007, and points to a recovery in mortgage lending in the final quarter of the year.”
The cost of fixed rate mortgage deals is continuing to tumble as lenders compete for business, figures showed today.
A number of banks and building societies are offering five-year fixed rate loans for less than 3 per cent following a slew of price cuts.
The average cost of a five-year deal now stands at just 4.08 per cent, down from 4.16 per cent at the beginning of September, according to financial information group Moneyfacts.
The fall comes despite the fact that five-year swap rates, upon which the loans are based, have actually increased by seven basis points during the period, in anticipation that the Bank of England will start to hike the official cost of borrowing soon.
Instead, the drop in rates is being driven by lenders competing for business, as they look to fill their annual mortgage quotas before the end of the year.
Chelsea Building Society, Tesco Bank and Yorkshire Building Society all currently have five-year fixed rate mortgages with sub-3 per cent rates.
Chelsea Building Society leads the field with a 2.85 per cent deal for people borrowing up to 65 per cent of their home’s value who pay a £1,545 fee.
For those looking to borrow 75 per cent of their home’s value, Tesco Bank is offering a rate of 2.99 per cent with a £1,495 fee.
Charlotte Nelson, of Moneyfacts, said: “Due to base rate speculation there has been volatility within the fixed mortgage market.
“However with many now predicting a later than first thought base rate rise, some providers have reduced their mortgage rates.
“As we are coming close to the end of the year, many banks and building societies are looking closely at their lending targets and the quickest way to get business is to reduce rates.”
The cost of two-year fixed rate mortgages has also fallen, with average rates dropping to 3.51 per cent, down from 3.78 per cent.
Chelsea Building Society also has the best deal for a two-year loan of 1.55 per cent, with a £1,545 fee for loan to value ratios of up to 65 per cent.
It is closely followed by Tesco Bank, which has a rate of 1.69 per cent for an LTV of 60 per cent and a £1,495 fee.
Virgin Money recently became the only lender to offer a six-year fixed rate mortgage, offering a rate of 2.99 per cent. But the deal was withdrawn following very strong demand.
The Bank of England is widely expected to start raising interest rates in the first quarter of next year, although two members of its Monetary Policy Committee have already voted for a hike.
Last week Governor Mark Carney warned that the point at which interest rates would start to rise from their current record low of 0.5 per cent was “getting closer”.
The number of mortgages approved for people buying a property fell for the second month running in August, figures showed today.
A total of 10,357 loans were in the pipeline for house purchase during the month, down from 10,703 in July, according to the Bank of England.
It was the lowest monthly figure since September last year, with the exception of April and May, when the market was disrupted by the introduction of tough new lending criteria under the Mortgage Market Review.
The data adds to growing evidence that the booming property market is beginning to cool, as buyers become more cautious in the face of recent strong house price gains and the prospect of future interest rate rises.
Bank of England Governor Mark Carney warned last week that the point at which interest rates would start to rise from their current record low of 0.5 per cent was “getting closer”.
Total mortgage advances increased slightly during the month, rising to 17.46 billion, up from 17.2 billion in July.
The figures came as the National Association of Estate Agents warned that the younger generation continued to be squeezed out of the property market.
The group said the number buyers aged between 18 and 30 remained at an all-time low of just 3 per cent of sales in August.
There was some good news, with the proportion of sales accounted for by people buying their first home rising to 28 per cent during the month, the first increase since April and up from just 20 per cent in July.
But the majority of people getting onto the property ladder are thought to be aged aged between 31 and 40, with this age group accounting for 45 per cent of all sales, the highest proportion ever recorded for August.
Mark Hayward, managing director of the National Association of Estate Agents, said: “Reports from our NAEA members suggest that the high house prices of the current housing market are still proving a barrier for the younger generation.
“It is evident that first-time buyers are indeed getting older, with the majority of home buyers this month aged 31 to 40, suggesting some correlation between the increase in the first-time buyer market and this age group.”
The number of properties for sale fell slightly during August, dropping to an average of 49 per estate agent branch, down from 51 in July.
There was also a dip in the number of sales agreed, with transactions falling to an average of eight per branch in August, compared with nine the previous month.
But there was an increase in the number of people looking to buy a home, bucking the recent trend, with 372 house hunters registering with estate agents, up from 368.
But nearly 90 per cent of estate agents think the expected increase in interest rates will affect demand for property, with 39 per cent of agents saying they have already seen a cooling.
Meanwhile, the Government has announced plans to extend the Help to Buy scheme to enable more young people to get on to the property ladder.
It said first-time buyers aged under 40 would be offered discounts of 20 per cent on 100,000 new build homes.
The discount will be made possible by releasing brownfield sites to builders and exempting them from certain taxes.
Homeowners are prepared to cut back on spending to ensure their mortgage repayments remain affordable when interest rates start to rise, research showed today.
Around 39 per cent of people said they would reign in their spending on non-essential items, such as holidays, eating out and buying gadgets, if their mortgage rate increased.
A further 20 per cent admitted they may have to make cuts on essential spending, such as food and clothes, according to a report by the Building Societies Association and the Money Advice Trust.
But 30 per cent of people said they would not need to make any changes in order to meet their mortgage repayments.
The Bank of England is widely expected to start raising interest rates from their record low of 0.5 per cent in the first quarter of next year.
Many homeowners have financial strategies planned to ensure a hike in mortgage rates does not come as a shock.
One in five people said they would remortgage on to a cheaper deal, while 12 per cent said they would work more hours and 10 per cent said they would pay off a lump sum of their mortgage to reduce monthly repayments.
Around 19 per cent of people said they would put major spending plans, such as home improvements, buying a new car or trading up the property ladder, on hold while they adjusted to a higher interest rate environment.
A further 6 per cent of people said they would consider downsizing to a cheaper property.
Overall, just 7 per cent of homeowners said they would be in serious financial trouble if interest rates change as they expect during the coming three years, while 20 per cent said they may be in slight trouble.
Just over half of people said they thought the Bank Rate would still be only 2 per cent or less by 2017.
But Bank Governor has indicated that the official cost of borrowing is likely to rise to around 3 per cent in the long-term, although he has stressed that any rate hikes will be gradual.
Paul Broadhead, head of mortgage policy at the Building Societies Association, said: “Our advice to those concerned about interest rate rises is to start thinking about how they will manage the increased costs.
“This could include creating a household budget, to taking a look at mortgage calculators and rescheduling unsecured loans such as credit cards.”
For homeowners who want to remortgage, there are some highly competitive rates available as lenders look to fill their mortgage quotas before the end of the year.
Norwich & Peterborough Building Society has the best two-year fixed rate loan available at 1.89 per cent for people borrowing up to 65 per cent of their home’s value who pay a £195 fee.
Yorkshire Building Society leads the way for those wanting to fix for five years, with rate of 2.89 per cent, although borrowers will need a 35 per cent deposit and will have to pay a fee of £975.