Gross lending reached £15.9bn in May, up from £15.8bn in April but down from £16.8bn in May 2014, according to the latest monthly figures published by the Council for Mortgage Lenders (CML).
May’s lending levels suggested the market was starting to recover following a slow first quarter, with home-mover lending up 2% on the previous month. However, home-mover lending failed to surpass levels witnessed a year ago, dropping by 12%.
Remortgage activity continued its subdued trend with borrowing and lending dipping 10% compared to April, while dropping 3% compared to the same time last year.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the decline in remortgage activity could be attributed to more stringent affordability criteria introduced in the Mortgage Market Review.
“There may also be some homeowners waiting for mortgage rates to fall further still, but while pricing may edge lower here and there as lenders compete for a limited number of borrowers, we have probably seen the low point for fixed rates,” he said.
“However, they won’t go up by much as lenders continue to struggle to meet volume targets and will absorb much of any underlying increase in swap rates in lower margins.”
Yearly lending volumes for first-time buyers continued to drop as the number of loans fell by 13% compared to May 2014, but saw a monthly increase of 3%.
The CML explained that competitive mortgage rates meant first-time buyers were paying a record low proportion of their monthly income to facilitate the capital and interest rate payments of their mortgage.
The amount of monthly gross household income spent to pay capital and interest repayments also reached a record low, at 17.7%.
In contrast to figures for homeowner loans, yearly remortgage activity in the buy-to-let sector was buoyant, with the value of loans increasing 36% but with no change on a monthly basis. Buy-to-let gross lending increased 22% year-on-year, while increasing by 1% in May from the previous month.
Richard Pike, sales and marketing director, Phoebus Software, said the main factors contributing to an active buy-to-let sector were low borrowing rates against high rental yields and a steady flow of funds into the buy-to-let market since the pension reforms.
He added: “However, with the Chancellor taking mortgage interest relief away from landlords in his recent budget we will have to watch to see how significant the effect will be on what has been the most consistently growing sector within the mortgage market in recent times. Add to this the new legislation around Tenant ID verification and we will see what impact this all has in coming months.”
