Mortgage bounce-back could be flash in the pan warnings

Friday 13th July 2012

Mortgage lending bounced in May, with loans for house purchase up by 36% compared with April – and by 29% compared with May of last year. But there were warnings that it could have been a flash in the pan.

According to the Council of Mortgage Lenders, the overall number of loans in May was up by 33% from April, and by 24% from May 2011.

The CML said the slump in activity that followed the end of the first-time buyer Stamp Duty holiday ‘appears to have been short-lived’.

First-time buying activity also bounced back, the CML reported, with 18,100 loans advanced to first-time buyers in May, up from 12,700 in April.

Lending to home movers rose as well, by 29% compared with April.

CML director general Paul Smee said: “It is positive news for the market. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year.

“However, the problems in the Eurozone have not gone away. Economic uncertainty could affect both the supply of mortgage lending and consumer confidence, and we still anticipate a challenging lending environment for the rest of the year.”

However, the CML’s hopes that this spring’s slump may have been short-lived could soon be dashed.

Valuations firm e-surv, which reckons to be within 1% of Bank of England statistics with its forecasts, says that mortgage lending slipped back 8% in June, with banks cutting lending to first-time buyers.

It estimates that loans for first-time buyers fell 12% last month to around 10,325 loans for house purchases under £125,000.

e-surv, part of the LSL group in which Your Move and Reeds Rains estate agents also operate, said that home purchase loans overall were 4% lower last month than in June last year, signalling that the mortgage market is regressing.

Richard Sexton, business development director of e.surv, said: “The mortgage market is slipping back into a state of paralysis. Banks are shipping their increased costs on to borrowers like a hot potato.

“It costs banks up to 40% more to fund a mortgage than it did in February, which is squeezing their balance sheets like a vice. They’ve responded by upping rates and reducing the number of mortgages they grant. First-time buyers have been hardest hit because they have smaller deposits, so are seen by banks as riskier borrowers.

“While credit is so scarce, banks would rather focus on sustaining lending to wealthier borrowers and buy-to-let landlords.
 
“A significant improvement in mortgage lending looks a long way off.” 
 
He added: “The Government’s Funding for Lending scheme can’t come into effect soon enough. Banks need access to cheaper funds if they are to increase lending to lower income buyers.”

* Meanwhile, a national conveyancing firm says it saw completed sales rise by almost a third last month, compared with June last year.
 
Irwin Mitchell’s conveyancing team, which works on property sales across the UK, says the number of June completions was also 8% up on May.

Lisa Gibbs, head of the national team of conveyancing specialists at Irwin Mitchell, said: “While much of the commentary related to property remains cautious and often downbeat, we are increasingly seeing suggestions that go against the grain and show there is a cause for optimism in relation to the market.
 
“While the Land Registry’s latest figures have hinted at improvements in prices, our own experiences and work have also shown a dramatic uplift, which goes some way to proving many home buyers are feeling more confident.
 
“We have not only seen increases in the number of transactions, but also had the general feeling from estate agents we work with that valuations and instructions have been on the rise.”

Nick Hopkinson, director of property firm PPR Estates, said: “The average monthly gross lending figure over the last three months, according to the CML records, is only £11.5bn. This is down by 3% on the same period last year and significantly less than half the volumes of lending we were seeing pre-credit crunch. Removing the spin, this is a much closer reflection of the struggling property and mortgage market that we are likely to see for the remainder of 2012 and beyond, particularly while the credit crunch and wider recession remain fundamentally unresolved.”

Estate agent Peter Rollings, of London agent Marsh & Parsons, said that unless the Government’s new funding for lending scheme proved a success, the CML’s May figures looked like being a flash in the pan.