David Cameron highlighted the plight of young people struggling to get a foot on the housing ladder as he brought forward the launch this week of the coalition’s Help to Buy mortgage guarantee scheme.
Yet data on Monday showed mortgage approvals at their highest level in more than five years, raising fresh questions over whether government intervention was necessary to spur recovery in the market.
Sales volumes, loans approved and change in lending
According to Bank of England figures, lenders approved 62,226 mortgages in August, up 30 per cent from a year earlier. Data from other sources suggest mortgages granted to would-be homeowners have increased even more rapidly than that.
Much of the new lending is going to first-time buyers – precisely the people the prime minister says he wants to help. Figures from the Council of Mortgage Lenders, a trade body for the industry, show loans to first-time buyers rose 41 per cent in the year to July to 25,300. For existing homeowners, the number of loans rose by less than 10 per cent over the same period to 32,000.
BoE data published this month showed the proportion of mortgages involving riskier forms of lending, with high loan-to-value ratios and high income multiples usually favoured by first-time buyers, is now at its highest level since the second quarter of 2009.
“What interests me above everything else that’s going on in the housing market at the moment is why we’re seeing such a strong recovery in reported first-time buyers,” says Bob Panell, economist at the CML.
However, even after the recent pick-up, mortgages to first-time buyers remain well below the levels seen at the peak of the housing boom. Mr Cameron claimed on Sunday that only “people with rich parents to help them” could afford the hefty deposits demanded by lenders.
He said the coalition was riding to the rescue of those excluded from the market by launching the next phase of Help to Buy three months earlier than planned next week. Under the scheme, the government will provide a partial guarantee to help people secure mortgages on homes valued at up to £600,000 with just a 5 per cent deposit.
“As prime minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed,” he said.
A Conservative aide yesterday pointed to CML figures showing that the typical first-time buyer needs a deposit of 20 per cent, equivalent to £29,000 for the average loan of £117,000. “Not many young people have easy access to that kind of money,” he said.
Figures from Hometrack showed that loans granted to first-time buyers are now 31 per cent lower than levels seen at the peak of the boom in 2006. That is less than the fall in lending to existing homeowners, which is down by half, possibly reflecting a decision by many homeowners to stay put during the downturn rather than realising losses on their property. “The aspirational home movers have certainly been suppressed,” said Richard Donnell, director at Hometrack.
Buy-to-let mortgages are down by 57 per cent, though CML figures suggest there has been some recovery in recent months. Buy-to-let remortgaging has also surged, rising by almost a quarter between June and July.
Mr Donnell said high rental prices in London, coupled with more availability of mortgages secured with deposits of 10 per cent or less, has helped drive demand from first-time buyers.
The surge in loans granted to first-time buyers could in part reflect pent-up demand from previous homeowners who sold their property around the time the boom collapsed and have been renting for a few years, waiting for the market to settle. These would-be homeowners are likely to be older – and with larger deposits – than most first-time buyers.
“Our data capture those who are coming back into home ownership,” Mr Pannell said. “Anecdotally, lots of people have put plans on hold. That the first-time buyer numbers are coming back as strongly as they had done, it wouldn’t surprise me if a larger than usual proportion of those [are previous homeowners].”
Mr Pannell estimates that, even in more normal times, the numbers of first-time buyers who have previously owned homes is around a fifth.
Additional reporting by Jim Pickard