Mortgage lending dips before the election

The number of mortgages handed out to first-time buyers and home movers fell by 16 per cent in Febru

The number of mortgages handed out to first-time buyers and home movers fell by 16 per cent in February - Credit: PA Wire/Press Association Images

The number of mortgages handed out to first-time buyers and home movers fell back by 16 per cent year on year in February, banks and building societies have reported.

The Council of Mortgage Lenders (CML), which released the figures, said the typical lending dip seen in the early part of the year may have been made stronger by the upcoming general election, with buyers putting their plans on hold while they await the outcome. Moving towards the summer, it expects to see an upturn in lending.

Bucking the trend seen in other types of lending, lending to buy-to-let property investors has shown strong year-on-year growth, with the number of loans handed out to this sector up by 11 per cent compared with February 2014. There were 15,900 buy-to-let loans in February with a collective value of £2.2billion.

Some estate agents have reported that new pension flexibilities, which give people aged 55 and over a greater choice over how to spend their retirement pots, have encouraged more retirees to consider investing in buy-to-let properties.

The CML said that so far, the increase in buy-to-let lending is “almost completely” down to remortgaging. Lenders have been slashing their mortgage rates in recent months amid expectations that any increase in the Bank of England base rate from its current historic 0.5 per cent low could be some way off.

The CML’s figures showed that 18,700 loans with a total value of £2.7billion were advanced to people taking their first step onto the property ladder in February, marking a 1 per cent decrease compared with January and a 16 per cent slide compared with February 2014.

It said that despite the dip in first-time buyer lending, it was the second strongest February for lending to this sector since 2007, behind only last year’s February level.

First-time buyers typically needed to put down a 19 per cent deposit in February, compared with one of 17 per cent in January. As mortgage rates remain relatively cheap, the CML’s figures showed that first-time buyers paid typically 19 per cent of their income towards paying off their mortgage, down from a recent peak of 24.8 per cent in December 2007.

Separate figures released by the Office for National Statistics (ONS) today showed that the typical price paid for a first-time buyer home in February was £205,000, which is an 7.4 per cent more than a year ago.

Meanwhile, the CML said 21,900 loans with a total value of £4.1billion were advanced to home movers in February, marking a 2 per cent decline compared with January as well as a 16 per cent fall compared with February 2014.

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Paul Smee, director general of the CML, said: “Seasonal factors have played their part in dampening house purchase lending activity in February.

“This typical seasonal trend may also be exacerbated by uncertainty ahead of the general election, but we still expect to see an upturn in the spring and summer months.

“Buy-to-let, in contrast, has shown year-on-year lending increases, due almost completely to remortgaging which is typically strong in the buy-to-let market.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, said that as of March, the mortgage market has started to pick up, as would be expected in spring.

Mr Harris said: “Buy-to-let lending is up year on year, proving its enduring popularity...

“The relaxation of pension rules this month is likely to provide a further boost for the sector. A combination of cheap mortgage rates, easing criteria and poor savings rates are convincing many that investment property is a sensible home for their money.

“Once election uncertainty is out of the way, we expect to see a flurry of activity in the mortgage market. There will certainly be plenty of cheap mortgage rates to tempt buyers.”