Mortgage approvals fall by 17% in three months as new affordability rules bite

9th May 2014

Mortgage lending has fallen by 17% in the three months to April according to research from online conveyancing firm E-surv.

E.surv director Richard Sexton believes that the Mortgage Market Review, a set of tough new affordability rules for mortgages are slowing down the lending market.

There were 63,170 house purchase approvals in April 2014, 6% lower than in March. House purchase approvals have fallen 17% over the last three months, with 13,000 fewer monthly home loans in April than in January 2014, when there were 76,251.

Compared to twelve months ago, house purchase approvals rose 15.3% in April. But the recent monthly falls may now be stalling the recovery of the mortgage market.

Sexton says: “The new MMR regulations introduced last month have temporarily slowed lending in the market. Borrowers must now prove that they can withstand potential interest rate rises up to 7%, as well as answering a host of detailed questions about future finances.

“Lenders have also invested time training staff and implementing lengthier advisory meetings, which has capped their capacity to process applications. It has led to an interim lending lull. But this is more than made up for by the benefits of the new system: ensuring lending is sustainable and borrowers can afford their repayments even when the base rate begins rising.

“MMR is not the only regulation putting the brakes on lending. The Bank of England are increasing stress testing of the top eight lenders, to make certain they can withstand a 35% fall in house prices – making them more resilient to any future financial problems. That means banks will need to build capital buffers, which may result in a further lending slowdown in the short-term.”

High LTV lending has tripled in the last five years

E-surv says mortgage market remains accessible to first-time buyers despite the monthly fall in house purchase approvals. There were 9,412 loans to borrowers with a deposit worth 15% or less of the total value of their property in April 2014, 48% higher than twelve months before (6,358) and over three times as many as in April 2009 (2,903). The average LTV was 62.7% in April 2014, compared to 60.5% a year previously, and 51.8% five years ago.

The number of first-time buyers reached a pre-recession high in March, according to the latest First Time Buyer Tracker from LSL Property Services. There were 31,400 first-time buyer sales in March, the highest since August 2007, as the average first-time buyer deposit fell 10% in a year.

Regional breakdown of high LTV lending

The property market is much more accessible to first-time buyers in the North of the UK. 26% of house purchase approvals were to borrowers with a deposit worth 15% or less of the total value of their property in April – the highest proportion of any region of the UK. The North East & Cumbria and the North West also contained high proportions of high LTV lending in April, 25% and 24% respectively.

Region

Proportion of loans that are high LTV

Yorkshire

26%

North East & Cumbria

25%

North West

24%

Midlands

18%

UK Average

15%

Northern Ireland

15%

Scotland

14%

South/South Wales

13%

East Anglia

13%

South East

10%

London

5%

 LOANS FOR HOUSE PURCHASE – seasonally adjusted

Month

Number

Monthly change

Annual change

November

70281

3.7%

31.7%

December

71303

1.5%

28.7%

January

76251

6.9%

41.1%

February

69592

-8.7%

32.5%

March

67135

-3.5%

24.6%

April

63170

-5.9%

15.3%

 

Methodology

e.surv analyses detailed data on over one million mortgage valuations the firm carried out between August 2006 and today. Each month, the researchers analyse tens of thousands of valuations and use these trends to extrapolate from the Bank of England’s mortgage data to publish mortgage approval numbers for the whole of the UK.

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