Demand for homes has driven a 30% rise in mortgage lending in the 12 months to February, reaching a total of £17.6 billion, according to the latest figures from banks and building societies.
Despite a monthly decline of 5% from January’s total, the Council of Mortgage Lenders (CML) has reported strong annual growth, as low mortgage rates and high demand for homes fuelled lending.
The £17.6 billion total was up from £13.6 billion recorded for February last year and was the highest lent in any February since 2008, when the financial crisis was starting to take hold.
The CML’s figures detail gross lending during the month, not taking repayments into account.
Recent months have seen strong levels of remortgaging activity, as borrowers take advantage of fixed rate mortgages at record lows.
Mohammad Jamei, an economist at the CML, states that the annual rate of growth was in line with the figures for the last months of 2015.
“The recovery is being underpinned by market fundamentals in the UK, as wages grow and unemployment falls, helped by Government schemes and competitive mortgage deals.”
Demand for Homes Drives 30% Rise in Mortgage Lending
The forthcoming change to Stamp Duty for buy-to-let landlords and second homebuyers, which comes into effect on 1st April, has caused a 40% increase in buy-to-let loans for house purchase in January, and it is likely that this surge will have continued into February.
However, Jamei does not believe that the figures point to a significant acceleration in lending: “While there may be a slight current boost to lending as some transactions seek to complete before the 1st April tax changes in the buy-to-let sector, this is likely to be followed by a slight fall in activity.
“Affordability pressures continue to weigh on activity, as does the low number of properties coming on the market, though this has been improving very recently.”1
Wednesday’s Budget confirmed that all property investors, including corporate landlords, will face the 3% Stamp Duty surcharge.
The new tax rate will add £6,000 to the cost of purchasing a £200,000 rental property.
The Chief UK Economist at IHS Global Insight, Howard Archer, says that lending was likely to have been boosted by both remortgaging and purchases.
“Housing market activity is seemingly getting some boost at the moment from increased activity from buy-to-let and second home purchases ahead of April’s rise in Stamp Duty,” he observes.
“This could exert limited upward pressure on house prices in the near term. Post April, a likely waning of buy-to-let interest may modestly dilute housing market activity and ease upward pressure on prices.”1
Many industry experts have reported a boom in the buy-to-let market ahead of the Stamp Duty change.
The main house price indices suggest that the cost of buying a home has risen more quickly than earnings in the past year.
Jeremy Duncombe, the Director of Legal and General Mortgage Club, which works with advisers and lenders, claims buyers are being forced to take out larger loans to cope with growing house prices.
He claims: “These high prices, combined with a lack of affordable housing, puts owning a property out of reach for many first time buyers. Initiatives that can aid the delivery of the 250,000 extra homes needed annually should be thoroughly explored by the Government, with all options considered.
“As the Chancellor himself conceded in his Budget, more needs to be done to speed up the realisation of these new properties if the housing market and the wider economy is to return to full health.”1
1 http://www.theguardian.com/business/2016/mar/17/demand-for-homes-fuels-30-rise-in-mortgage-lending