Lending to first-time buyers hits year high
Mortgage lending figures to first-time buyers reached their highest level for a year in July, according to the Council of Mortgage Lenders (CML).
Its latest statistical release reveals that July's lending total of £2.3 billion rose from £2.2 billion in June and is the highest monthly total since July 2010, when a figure of £2.4 billion was recorded.
The number of loans to first-time buyers has dropped though: down from 19,500 in July 2010 to 18,200 a year later. Meanwhile, the average loan-to-value (LTV) for new home-buyers is 80%.
Paul Smee, director general of CML, says that the UK mortgage market is "holding steady". He argues that increased lending figures are to do with reduced consumer demand: "It is likely that they [CML figures] reflect weak consumer appetite for borrowing more than any additional constraints on the availability of mortgages."
David Hollingworth, spokesperson for London & Country Mortgages, says there has been more improvement in the housing market of late but doesn't think that this is a sign of a full recovery: "The market has improved to a degree and any changes to lending that we see are now slight improvements, but it's still too early to be talking of a burgeoning first-time-buyer market."
Hollingworth adds that there are a handful of lenders now offering 90% or 95% LTV deals, (such as National Counties Building Society and Bath Building Society) on the proviso that they are secured against the homes of would-be buyers' parents.
Last week also saw Aldermore offer borrowers a 100% mortgage. Similar to National Counties and Bath's deals, Aldermore's Family Guarantee Mortgage guarantees the mortgage against the homebuyers' parents' home should they fail to make payments.
These deals are good for parents who want to help but can't afford a large deposit, says Hollingworth but he warns: "They require a lot of thought though and parents should seek advice before committing. There is also the threat of negative equity if prices drop slightly."
The circumstances in which a property is worth less than the outstanding mortgage debt secured on it. Although it traps householders in their properties, the Council of Mortgage Lenders (CML) says there is no causal link between negative equity and mortgage repayment problems. At the depth of the last housing market recession in 1993, the CML estimated 1.5 million UK households had negative equity but most homeowners sat tight, continued to pay their mortgages and eventually recovered their equity position.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.