Mortgage lending plummets by 30%

 
14 June 2012

Mortgage borrowing fell sharply after a stamp-duty concession for first-time buyers was withdrawn, lenders said today.

The number of loans to home buyers fell by 30% month-on-month in April to 36,000 loans worth £5.3 billion, the Council of Mortgage Lenders (CML) said.

A total of 12,600 loans worth £1.5 billion were advanced to first-time buyers in April, around half the number recorded in the previous month, when buyers rushed to complete deals before the two-year concession ended, the CML found.

The body warned that a significant pick-up in purchases is unlikely in the coming months due to the uncertain economy.

The drop in first-time buyer activity was seen mainly among homes worth between £125,000 and £250,000, which would have been exempt from stamp duty until March.

Purchases of homes in this bracket plummeted by 70% month-on-month in April while sales of homes valued at up to £125,000, which are not subject to stamp duty, fell by a more modest 11%.

First-time buyer purchases of homes worth more than £250,000, which had not been eligible for the concession, also fell more gently, by 5%.

The stamp-duty concession was introduced by the previous government to stimulate the market and estate agents reported a flurry of activity from people trying to beat the deadline before the scheme ended on March 24.

The Government has introduced the NewBuy Guarantee scheme, which it hopes will kick-start activity by helping people to buy new-build homes with just a fraction of the usual deposit.

CML director general Paul Smee said: "April's figures show the expected effect of the end of the stamp-duty concession on UK mortgage lending.

"Given the economic uncertainty, any significant pick-up in lending in the coming months seems unlikely.

"However, our recent research highlights that over 80% of people still aspire eventually to own their own homes and long-term demand clearly still exists."

Lending to home movers was also down by 15% month-on-month in April. Some 23,400 loans worth £3.8 billion were taken out over the month.

Lenders have been tightening their borrowing criteria amid the weak economy and the ongoing eurozone crisis, which has triggered a drop in the proportion of mortgage approvals.

They have also been raising their mortgage rates in recent months, blaming problems with the economy and the increased cost of funding a mortgage.

Bank of England figures showed yesterday that the typical rate being offered to customers for a two-year fixed rate mortgage with a 25% deposit held steady at 3.66% in May, following increases every month since October last year.

But the rate for two-year fixed deals for people with just a 10% deposit increased by 25 percentage points from April to 6.04%, the highest rate since January 2011 and a figure which has also been steadily rising since last autumn.

Analysts have said rates are likely to creep up further as increased costs faced by banks amid the eurozone crisis have not yet fully filtered down to mortgage customers.

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