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Mortgage lending commitments hit post-credit crunch high as home movers dominate

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  • 08/12/2020
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Mortgage lending commitments hit post-credit crunch high as home movers dominate
The value of new mortgage lending commitments made during the third quarter of this year reached its highest level since 2007, showing the extent of the housing market rebound.

 

According to data from the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) lenders made £78.9bn worth of commitments for future lending from July to September.

This was 6.8 per cent higher than the same period last year and more than double the £34.4bn committed to in Q2.

The value of lending completed during the three months was £62.5bn which was still 14.7 per cent lower than Q3 2019, but it was 41 per cent higher than the £44.2bn lent in Q2 at the height of the pandemic.

 

Home movers and first-time buyers

The breakdown of mortgage borrowing uses also told the story of how the housing market has evolved this year.

Home movers surged to be the dominant force taking up a third of all borrowing – this was above the 31 per cent in Q3 2019 and far higher than the 27 per cent and 23 per cent shares in Q1 and Q2 of 2020 respectively.

In contrast, remortgage business which had soared to 38 per cent of all lending in the previous three months dipped to 25 per cent of borrowing from July to September.

First-time buyers also recovered in number and took 23 per cent of all borrowing – their highest proportion in the last six quarters.

Finally, buy to let maintained its stable nature recording 12.5 per cent of lending. The buy-to-let market has accounted for between 12.3 and 14.4 per cent of lending throughout the last six quarters.

 

Interest rates, LTVs and LTIs

There was an increase in the proportion of borrowers taking loans between 75 per cent and 90 per cent loan to value (LTV) with 36 per cent of borrowers in this bracket, the highest over the last six quarters.

This reflects a dip in the availability of higher LTV mortgage which fell to 3.5 per cent of borrowings, down from 5.9 per cent a year earlier and further falling from 4.8 per cent in Q2.

Across the data loan to incomes (LTI) and interest rates for borrowers rose as a reflection of higher LTVs and lenders increasing rates.

More than a fifth of lending was completed at rates between 2.00 per cent and 2.99 per cent above Bank of England base rate – double the level of a year ago.

And while 74 per cent of borrowing was done at up to two per cent more than base rate, this was down ten percentage points from last year.

Quilter mortgage and protection adviser Karen Noye raised some concerns with the figures.

“One of the worrying findings that should ring alarm bells is that the value of new mortgage commitments is 6.8 per cent higher than a year earlier, at £78.9 billion and the highest level since 2007 Q3.

“While it would be foolish to draw comparisons between the mortgage market now and the one back when the financial crash hit in 2008, we are dealing with unchartered waters and it is worth proceeding with caution.

She also noted that the share of mortgages advanced LTV ratios exceeding 90 per cent was just 3.5 per cent, which is 2.4 percentage points lower than 2019.

“This is a product of lenders being reticent to offer higher loan to value mortgages due to forecasts of economic uncertainty making it hard for these types of buyers to get their feet on the ladder,” she said.

 

 

 

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