Opinion Former Article

CML: First-time buyers reach highest yearly total in five years

The number of first-time buyers reached its largest yearly total in five years, according to new data released today by the Council of Mortgage Lenders.

A total of 216,200 first-time buyers became homeowners in 2012, the first time the annual total has exceeded 200,000 since 2007, a year-on-year rise of 12% on 2011 when 193,000 loans were advanced.

On a monthly basis, lending to first-time buyers, home movers and remortgage lending all eased in December, reflecting the usual seasonal factors.

First-time buyers

A total of 19,100 loans were advanced to first-time buyers in December, a 12% drop compared to November but up by 3% on the same period in 2011. By value, loans to first-time buyers totalled £2.4 million, a 11% fall on the previous month.

The fourth quarter total - which is less affected by "noise" and seasonal trends than the monthly figures - showed that lending to first-time buyers continued to strengthen. There were 60,500 loans advanced in the last quarter of 2012, worth £7.6 billion, an 8% increase from the third quarter and up by 14% compared to the fourth quarter of 2011.

In the fourth quarter, first-time buyers also accounted for 42% of all house purchase lending, above the 38% typically seen.

There was also a modest but discernible increase in lending at higher loan-to-value ratios in the last quarter. While the average loan-to-value ratio stayed at 80%, where it has been for two years, this masks some encouraging movement in higher loan-to-value lending. For example, 1 in 40 first-time buyers took out a 95% mortgage compared with less than 1 in 100 a year earlier. And around 1 in 5 first-time buyers borrowed 90% or more.

Table 1: First-time buyers, lending and affordability

Table 2: First-time buyers, lending and affordability (year-on-year)

Table 3: Home movers, lending and affordability

Table 4: Home movers, lending and affordability (year-on-year)

Reflecting the fall in lending to first-time buyers and home movers overall, house purchase activity dipped in December. A total of 45,000 loans, worth £6.7 billion, were advanced in the last month of the year, down by 13% compared to November and by 4% on December 2011.

In the fourth quarter, meanwhile, the number of loans advanced increased compared to both the third quarter and the same period in 2011. There were 145,400 loans advanced, up from 143,500 in the third quarter.

Despite the fall in house purchase lending at the very end of the year, strong month-on-month increases throughout much of the year led to a 6% (7% by value) increase in house purchase lending in 2012 compared to 2011. A total of 540,200 loans were advanced worth £80.9 billion, the largest annual total since 2007.

Table 5: Loans for house purchase and remortgage

Table 6: Loans for house purchase and remortgage (year-on-year)

Following subdued remortgage lending throughout 2012, there was a 13% fall in 2012 overall. This pattern continued in December when the value of remortgage lending (£2.8 billion) was 18% lower than the previous month and down by -22% compared to the same period in 2011.

More positively, there was a 5% increase in the fourth quarter total when compared to the previous quarter.

Interest rates

The improvement in funding conditions, and in particular the Funding for Lending scheme (FLS) have stemmed the upwards pressure on interest rates seen through the first half of the year.

This is particularly true for fixed rate loans, the rates on which peaked at 4.25% on average in August (coincidentally when FLS was launched) and have subsequently fallen to 3.84%. Fixed rate loans became increasingly popular throughout 2012 – overall 69% of mortgages in 2012 were advanced on a fixed rate, up from 62% in 2011 and the largest proportion since 2007. This preference for fixed monthly payments was prevalent among first-time buyers, 83% of whom opted for a fixed rate loan in 2012.

Commenting on the data, CML director general Paul Smee said:

"Despite the seasonal dip in lending that we normally see in December, the underlying trend for year-on-year increases in house purchase activity continued in 2012.

"First-time buyers, in particular, have benefitted from the effects of better funding conditions and the Funding for Lending scheme, with the number of new people moving into home-ownership in 2012 reaching the highest level for five years. This, along with other factors, confirms that lenders really are open for business."

NOTES TO EDITORS

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.2 million mortgages in the UK, with loans worth over £1.2 trillion.

2. Source: CML Regulated Mortgage Survey

3. The Council of Mortgage Lenders does not publish statistics for mortgage approvals. The data in our monthly Regulated Mortgage Survey and gross lending press releases relate to mortgage advances only. A mortgage approval is the firm offer to a customer of a specific amount of credit secured against a particular property. A mortgage advance is the total amount of loan actually provided to the buyer, by the lender. Please see the mortgage statistics timeline on our website for further information.

4. The January 2012 data will be released on Thursday 14 March 2013

5. Full historical tables are available on request from the CML press office.

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