There were 8,250 house purchase approvals to borrowers with deposits worth 15% or less of their property’s value in November 2014 – 12% lower than 9,379 a year ago. On a monthly basis, higher LTV approvals fell 6.8% from 8,854 in October. The November dip has compounded monthly falls in October (-18.3%) and September (-5.0%) meaning lending to higher LTV borrowers has dropped by almost a third (-30.1%) over the last three months.
As a proportion of the market, higher LTV borrowers – typically first-time buyers – continue to shrink from a five-year peak of 17.8% in August 2014. Their share of total house purchase approvals also dropped in September (17.7%) and October (14.9%) to hit a ten-month low in November (13.5%). This comes as the number of first-time buyer transactions shrank by 12.3% over the last three months according to the most recent First Time Buyer Opinion Barometer from Your Move and Reeds Rains.
Richard Sexton, director of e.surv chartered surveyors, explains: “Demand has ebbed from the bottom end of the market. After the summer flood of first-time buyers, LTI caps introduced in October stemmed the flow of new borrowers into the mortgage market. The Bank introduced these caps against a backdrop of speculation about the market overheating. Now, this wintry cooling is a sign of their pre-emptive action taking effect.
“The Chancellor’s changes to stamp duty will make homes cheaper for first-time buyers. This was clearly needed. It means that those first-time buyers left high and dry by the old system are able to buy at last.
Now that the cumbersome slab system has been replaced with a series of graduated rates, the goalposts have shifted for higher LTV homebuyers. Whatever twists and turns the New Year takes, first-time buyers can rest assured that more properties are now within their reach thanks to this long-awaited reform.
In 2014, Help to Buy put capable homebuyers in a stronger position to borrow. This increased demand, but putting a finger on just one end of the scale simply inflamed the chronic issue of home shortages. The slowdown in higher LTV lending is due in part to the depletion of the UK’s stock of affordable housing. Suggestions in the Autumn Statement that the government will take direct charge of home provision, from the release of land to the building of new properties, will hopefully even the odds for stifled first-time buyers.”
Despite the slowdown in lending to higher LTV borrowers, total house purchase approvals grew to 61,108 in November, up 2.8% month-on-month from 59,426 in October.
This uptick comes after a series of decreases in July (-1.1%), August (-2.9%), September (-4.4%) and October (-3.0%).
Though the proportion of higher LTV borrowers has decreased, the number of lower LTV borrowers has gone up. There was a 5.2% increase in lower LTV borrowing from 18,184 home-purchase loans in October to 19,127 in November.
However, there were 14% fewer house purchase approvals in total compared to November 2013, when the volume of approvals sat at 71,050. This is the largest annual decrease since December 2010. It also makes this November the third consecutive month in which house purchase approvals have fallen on an annual basis.
Richard Sexton, director of e.surv chartered surveyors, explains: “The stabilisation of the market comes despite record lows in first-time buyers. A flurry of activity in lower LTV borrowing is allowing the market to stabilise despite record drops in higher LTV borrowers. This is a sign of a healthy market, fit to operate with an eye on the long-term. In 2009 we saw exactly what happens when an out-of-shape mortgage market starts sprinting. But the Mortgage Market Review and loan-to-income caps have put the market through the financial boot camp, and what we have now is a lean, capable market driven by borrowers who are able to see their loans through to the end. These figures display a market rebuilt for endurance, performing precisely as hoped.
Looking ahead, the savings to buyers outlined in the Autumn Statement are expected to give 98% of the market a better deal on house purchases. This is a welcome policy indeed – rather than a government initiative which reactively attempts to prevent decline, we have an improvement that the market can really use in a sustainable fashion.”
