Mortgage approvals drop as buyer demand fades
Friday 8th March 2013
Mortgage approvals fell to their lowest level in seven months in February, a national firm of valuers forecasts today.
E.surv, part of the LSL group, said that only Funding for Lending was preventing a ‘much’ steeper fall in house purchase lending – even though uptake has been lower than expected.
Using its own data, e.surv predicts that house purchase lending fell by 11% in February to 49,019 from 54,719 in January, making it the lowest level since last July.
The fall comes despite a wider and cheaper range of mortgages on offer, which suggests that the drop in lending was due to weakening borrower demand and not a decline in the availability of mortgages. It is the second successive month that house purchase lending has fallen, reversing five months of rises in lending between August and December last year. However, e.surv says lending to high LTV borrowers increased as a proportion of overall lending, suggesting that mortgage availability for first-time buyers is improving.
Lending to borrowers with a deposit of 15% or less increased to 12.3%, the highest proportion since January 2012.
The average LTV also rose to its highest level since January 2012, at 61.3%, after consistently tracking below 60% for most of 2012. This suggests the fall in house purchase lending in February was caused mainly by fewer loans to low LTV borrowers. Richard Sexton, business development director of e.surv chartered surveyors, explains: “House purchase lending has fallen despite a wider and cheaper range of mortgages on offer from lenders.
“The root cause is difficult to discern: the bad weather at the beginning of the year and a fall in demand for mortgages, rather than a tighter supply of them, may both be factors.
“More would-be buyers are focusing on consolidating and paying off debts, and are reluctant to purchase a new home while their finances are being pillaged by high inflation and record low savings rates.”
He said that despite poorer than expected uptake of Funding for Lending, the scheme has prevented much steeper falls in lending.
The Bank of England’s latest figures show that overall net lending has contracted by £1.5bn since the introduction of FLS, but banks have drawn down £13.8bn from the scheme, suggesting they are using it to cushion the market against an even sharper fall in lending. It has also improved the cost and availability of mortgages. Since the scheme began last August, over 300 new first-time buyer mortgages have entered the market and rates on fixed rate mortgages have fallen to record lows. Sexton said: “Critics have been quick to jump on Funding for Lending and paint it as impotent. Net mortgage lending has fallen £1.5bn since the scheme began, but without it the fall in lending would have been much steeper.”
He added: “The scheme is working, but it is not large enough to cancel out the negative impact of tight credit conditions and a weak economy. It needs to be enlarged.”
He said he was hopeful that the full effects of FLS would be seen over the next few months.