First time buyers comprised the largest percentage of mortgage recipients during 2013, the highest level of acquisition since 2000, according to the UK’s largest lenders.
The Council of Mortgage Lenders, which consists of 98% of the UK’s secured loan lenders, identified that almost 270,000 first time property owners acquired a mortgage from them in 2013, which comprised 44% of the total mortgage distributed in the country last year.
In the general market, the total number of mortgage acquisitions increased by 11.2% from 2012, whilst the number of first time buyers to get a mortgage rose by almost 25%, taking levels to their highest point since the start of the millennium.
The coalition’s flagship Funding for Lending and Help to Buy schemes were forwarded as the primary factors behind the resurgence of first time buyers in the property market, arguing that the 5% deposit facility and higher loan to value mortgages that have been produced from the initiatives has made it more financially attainable for people to acquire a mortgage.
However, the Council of Mortgage Lenders has worryingly identified that the knock on effect of making higher loan to value mortgages more readily available has been that people are now accruing a higher level of mortgage debt than they have done in almost seven years, with figures displaying that people are now having to obtain mortgages that are a far higher multiple of their income.
Despite the recent upturn in the first time buyer market, official data clearly indicates that lending figures remain far below their peak prior to the start of the global financial crisis back in 2008, when over 500,000 first time buyers were entering onto the property ladder each year.
Moreover, the inflation in property prices to levels that mirror that of pre-recession values has meant that people are now taking out larger mortgages in relation to their income, with the average mortgage-to-income ratio now at its highest point since 2007.
The current average mortgage is estimated to be 3.3 times larger than the average income, which is higher than the 3.26 figure given for 2012. Moreover, the 3.33 figure represents the highest the ratio has been in forty years, and clearly displays that there are challenges the property market must overcome if it wishes to remain in financial reach of prospective homeowners in their 20’s.
New mortgage application procedures are set to be implemented in April this year, which will see lenders move away from the income multiple system that has governed the market for a number of years. Instead, applicants will have to pass two affordability checks; one that tests their income against monthly repayments at current interest rates, and another that will see how their current salary copes against estimated higher rates in the future.
The borrower will have to pass both tests in order to acquire a mortgage, which will likely see the number of successful applications diminish over the course of this year.
The CML’s director general, Paul Smee, said: “In 2013 there has been a resurgence in the mortgage market with year-on-year growth for all types of borrower.
“First-time buyers were an especially important factor in driving the market forward in 2013 as improved economic conditions, as well as the introduction of government schemes like Help to Buy, have given the opportunity for them to enter the market and become homeowners.”
He added: “The consistent upward lending trend seen throughout 2013 would suggest relative optimism going forward. But there are challenges ahead, not least in implementing the Mortgage Market Review regulation in April and in ensuring that there is no suggestion of a property bubble; and all this will be key to determining how the market will perform in 2014.”
Howard Archer, chief UK economist at IHS Global Insight, argued that whilst there has been signs of ‘bubble like’ symptoms in certain areas of the country, that nevertheless the Bank of England will ensure that the property market receives the necessary changes in order to ensure that this does not manifest in reality.
“We expect the BoE to take further action before long to try and dampen the strength in the housing market, which could very well include recommending to the government that it dilutes the Help to Buy mortgage guarantee scheme.
“In particular, the £600,000 price limit for a house under the scheme could be cut, perhaps to £300,000-£400,000.Source; MoneyExpert