2012 saw lending to first time buyers rise by 11% as lending to borrowers with small deposits reached its highest level since the financial crisis, according to analysis of the 2012 mortgage market by e.surv chartered surveyors.
Its latest Mortgage Monitor showed there were 63,896 house purchase loans provided to buyers with small deposits last year, up 11% from 57,691 in 2011. It was the best year for high loan-to-value lending since 2007.
2012 was the strongest year for house purchase lending since the financial crisis, with the number of loans breaching the 600,000 mark for the first time since 2007. Purchase approvals rose 3% from 590,425 in 2011 to 607,058. The stabilisation of the Eurozone crisis, and access to cheaper mortgage funds for banks, were the foundations of the improvement. The increase in 2012 took house purchase lending levels to 16% higher than they were during the market’s low point in 2008.
Richard Sexton, business development director of e.surv chartered surveyors, said: “The first half of 2011 was pitifully weak for mortgage lending, even by post-2008 standards. The Eurozone crisis was in full swing back then and lenders’ funding lines were painfully constrained. The crisis began to stabilise in 2012, which boosted confidence and increased banks’ appetite for riskier lending to high LTV borrowers. And funding became cheaper for lenders in late 2011 and early 2012, which encouraged banks to offer more competitive rates.
“The end of the stamp duty holiday in late March also swelled lending levels in 2012. It created a stampede of first time buyers in the first quarter of the year rushing to avoid a hefty tax bill on their first property.”
However, 2012 was a year of two distinct halves for first-time buyers. Although the overall number of house purchase loans were split equally between the first and second halves of the year, loans to first-time buyers fell away sharply by 13% in the second half of the year.
Banks sustained lending levels in the second half of the year by focusing lending on wealthier borrowers at the expense of first-time buyers. There were 34,217 loans to borrowers with small deposits in the first half of the year, but just 29,679 in the second half thanks to a squeeze on bank funding and an unexpected dip in the economy.
Although the range of high LTV mortgages available improved, banks continued to keep a close rein on underwriting criteria more generally in the second half of the year. This was despite a record quarterly increase in Q4 to the mortgage credit available to lenders, in part stimulated by the Funding for Lending Scheme. The ongoing struggles of the economy, and a squeeze on funding from the money markets, meant lenders were reluctant to use the cheaper funds provided by FLS to significantly increase lending to high LTV borrowers.
As a proportion of total house purchase lending, loans to borrowers with small deposits (of 15% or under) in the second half of the year dropped to 9.8%, compared to 11.2% in the first half of the year.
The third quarter was the weakest of the year. The Olympics distracted potential homebuyers over the late summer and early autumn, and also coincided with a weaker than expected quarter of economic growth. There were just 14,887 house purchase loans granted to borrowers with small deposits during Q3, well below the average for the year of 15,974.
The fourth quarter saw a meaningful improvement in lending compared to Q3, helped in part by the start of the Funding for Lending Scheme, but still lagged well behind lending levels in the first half of the year. The improvement was thanks largely to banks focusing on wealthier borrowers – despite lending increasing in October and November, lending to borrowers with small deposits accounted for the same proportion of overall lending as in Q3.
In line with the poor second half of the year, house purchase lending dipped sharply in December. Purchase approvals fell 9% to 49,113 from 54,036 in November, and there were 7% fewer loans than in December 2011, making it the third weakest December since records began in 1993. Banks continued the trend over the second half of the year of lending disproportionately highly to wealthier borrowers.