First-time buyers take up of mortgages rose to the strongest level in nearly six years in May, helping fuel the housing market in first month in which homebuyers faced tougher lending rules.
First-time buyers took out 26,800 mortgages worth a collective £3.9bn in May, marking the biggest number of loans advanced to people entering the property market since November 2007, according to the latest lending figures from the Council of Mortgage Lenders.
Paul Smee, director general of the CML, said: “With May lending figures, we get our first glimpse at the effect the Mortgage Market Review has had on lending trends and, at least so far, the impact appears subtle, rather than dramatic.”
At the end of April, Britain’s financial regulator introduced rules to prevent a return to the irresponsible lending which triggered the 2008 financial crisis. Under the Mortgage Market Review (MMR), lenders must ask home buyers and people looking to remortgage more detailed questions about their spending habits to ensure they are able to repay loans.
Mr Smee, who said first-time buyers and home movers continued to be key drivers of housing market growth, said: “Their activity does not seem to have been noticeably disrupted. There was no cliff edge; lenders and intermediaries had been methodically working towards applying MMR changes for months leading up to implementation and the figures appear to reflect this.”
Rising house prices meant first-time buyers were stretching themselves further with average loans of 3.43 times their gross income, up from 3.42 in April.
The typical loan size for first-time buyers was £123,200 in May, up from £121,500 in April, and gross income remained unchanged at £37,000. By value, lending to first-time buyers has risen 30pc compared with the same month a year ago.
Average deposits raised by first-time buyers was 16pc of the value of the home – the lowest average deposit share needed since 2008. The CML said that the current low interest rate environment means that at the moment, borrowers’ payment burdens remain “relatively low”, with 19.5pc of their gross income typically going towards their mortgage repayments.
However, recent surveys have indicated that the MMR rules, increasing doubts among buyers about affordability, and the Bank of England’s Financial Policy Committee decision to get banks to apply “stress tests” to make sure a loan would still be affordable when interest rates rise has cooled the market. A blanket ban is also being put on any loans at all being given at loan-to-income ratios at and above 4.5 under the Help to Buy mortgage guarantee.