First-buy slump short lived

The slump in activity that followed the end of the first-time buyer stamp duty holiday appears to have been short lived as house purchase lending increased substantially in the UK in May, according to latest figures from the Council of Mortgage Lenders.

In May, house purchase lending increased by 36 per cent compared to April and 29 per cent compared to last May. The number of loans also increased, by 33 per cent from April and by 24 per cent from a year ago.

Remortgage lending also increased in May with £3.5bn advanced for remortgage. This was up from £3.1bn in April but down from £3.8bn 12 months ago when there was a greater expectation of interest rate rises.

First time buyer activity bounced back following the volatility of March and April. Some 18,100 loans, worth £2.3bn, were advanced to first-time buyers in May, up from 12,700, worth £1.5bn, in April.

This may be a 43 per cent rise from April but, following the distorting effects of the end of the stamp duty concession, this returns first-time buyer lending back to a similar level seen in the second half of 2011.

The CML said that the characteristics of first-time buyer loans began to return to normal after March and April’s stamp duty effect. First-time buyers on average took out a loan of £104,000 in May, up from £97,750 in April. They also borrowed 3.21 times their income, up from 3.12 in April and they paid 19.6 per cent of their income in capital and interest payments, up from 19.1 per cent.

All of these May figures are more in line with the typical experience over the past year. The proportion of first time buyers buying properties valued at between £125,000 and £250,000 rose from 37 per cent in April to 44 per cent in May, but was not quite back at the norm of around 50 per cent seen since 2007.

Lending to home movers also increased with 30,200 loans taken out, worth £4.9bn. This was up 29 per cnet by number and value compared to April and up 25 per cent from May 2011.

“It is positive news for the market that the slump following the end of the stamp duty concession seems to have been short lived. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year,” said CML director general Paul Smee.

“However, the problems in the Eurozone have not gone away. Economic uncertainty could affect both the supply of mortgage lending and consumer confidence and we still anticipate a challenging lending environment for the rest of the year,” he added.

David Brown, commercial director of LSL Property Services reckons that the figures should be taken with a pinch of salt. “In reality, we are witnessing a return to the level of mortgage lending seen before the rush to beat the end of the stamp duty tax concession, rather than the start of a sustained improvement in the number of first time buyers able to leave the private rented sector,” he said.

According to Paul Hunt, managing director of Phoebus Software, the figures are reassuring as they indicate that the subdued level was nothing more than a blip after disruptive effects of the end of the stamp duty holiday.