Lending for house buying falls 28% in a month in ‘sluggish’ market

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Lending to home-movers has continued to decline in January while separate data paints a mixed picture for the property market.

An array of reports on lending, prices and transactions released on Tuesday give an idea of the state of the market.

First, data from the Council of Mortgage Lenders (CML) suggests a bleak picture for home movers with the number of loans for house purchase in January hitting its lowest level for two years.

This has concerned the CML so much that it has commissioned research into reasons behind the decline.

Home buyers borrowed £8.4bn January 2017, down 28% on December 2016 and unchanged year-on-year January 2016, CML figures show.

This came to 45,700 loans, down 28% on December and 1% on January 2016.

Of this figure, first-time buyers borrowed £3.6bn, down 29% on December but up 9% on January 2016.

They took out 22,600 loans, down 29% month-on-month but up 7% year-on-year.

Home movers borrowed £4.9bn in January, down 25% on December and 4% year-on-year.

This equated to 23,000 loans, down 27% month-on-month and 7% compared to January 2016.

Gross buy-to-let lending was at its second highest monthly level since Stamp Duty changes were introduced last April, but much of this was driven by remortgage activity, the CML said.

Buy-to-let loans were up 11% by value and 12% by volume, but both declined by 16% year-on-year.

Paul Smee, director general of the CML, said: “January gives the impression of a flattish market overall, albeit one with a resurgent remortgage sector. We expect a seasonal dip in activity in the winter months and this appears to be the case in January.

“However, the lull in moving activity appears stubbornly persistent, and we have commissioned research on the reasons why the number of transactions seems in secular decline.

“Buy-to-let house purchase activity continues to be weak, despite strong buy-to-let remortgage levels. This will likely remain so going forward as lenders tighten affordability criteria ahead of the PRA mandated stress tests, and the introduction of tax changes in April.”

Commenting on the figures, Nick Leeming, chairman of Jackson-Stops & Staff, said: “The continued sluggishness of home mover activity in January 2017 highlights once again that urgent action is needed to increase property market liquidity.

“A reduction in the Stamp Duty burden at all levels would breathe life into the lethargic UK housing market and we are hopeful the Chancellor will give due consideration to this policy in the combined Budget and Autumn Statement later this year.”

Meanwhile in terms of property prices, Home.co.uk is predicting stagflation in the property market as its March house price index shows asking prices were 0.6% up on February to £300,187, but up just 2.6%, compared with 7.9% this time last year.

Typical time on the market has fallen by two days compared with last year to 100, while supply fell by 6% annually.

The index says there is still vendor confidence north of London, particularly in the East of England where prices are up 9.6% annually, compared with the capital where they have slipped 1.5%.

Doug Shephard, director at Home.co.uk, said: “Vendor confidence remains high in certain regions and is most apparent in the East of England, East Midlands, North West and South West.

“Prices almost always enjoy a spring boost. However, as we approach the end of quarter one of 2017 with a continually declining year-on-year price trend, UK property looks fated to endure a year of stagflation at best.”

The market may be picking up for first-time buyers, though, if one looks at transactions data, with Connells Survey & Valuation predicting the proportion of activity for newcomers reached a seven-year high in February.

The data showed first-time buyer valuations rose to 36% of market activity in February, rising from 28% in February last year, the highest proportion buyers since July 2011 and the highest February since 2010.

However, the outlook was not so good for buy-to-let, with landlord activity representing just 8% of market activity in February – the lowest level for the month in more than five years.

John Bagshaw, corporate services director of Connells Survey & Valuation, said: “The Stamp Duty surcharge has succeeded in helping first-time buyers at the expense of landlords. But this may well be temporary. Less competition for today’s first-time buyers comes at the expense of tomorrow’s. Most people rent as they save for a deposit, but the steady investment into the rental market is running dry.

“With limited new homes being built for the rental sector, rents will soon start to rise. This will devour tenants’ disposable income which would otherwise have been saved for a deposit.

“The problem will be exacerbated next month as mortgage tax relief is removed, forcing more landlords to exit the market or ramp up rents.

“We may be in the eye of the storm in Britain’s housing market – a brief period of calm before the turbulence begins again. The base rate can’t stay on the floor forever.

“With Brexit approaching, economic conditions may get tougher. First-time buyers may need to board the ladder now before it’s hoisted up again.”

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