Number of mortgages advanced to first-time buyers in March hit 24,000, with 98% taking out repayment loans
The end of the stamp duty holiday on homes costing between £125,000 and £250,000 led to a surge in activity in the mortgage market in March, according to figures from the Council of Mortgage Lenders (CML).
The number of mortgages advanced to first-time buyers leapt by 74% during the month to 24,000 as they raced to complete on purchases before the 24 March deadline. This was 57% higher than in March 2011 and, at £3bn, 67% higher in value.
The CML said 63% of first-time buyers who bought a property in March had chosen one valued between £125,000 and £250,000 so were exempt from stamp duty. This compares to an average of about 50% since 2006 (except immediately before and after the end of the previous stamp duty concession).
The crackdown on interest-only mortgages, which has seen lenders reduce maximum loan-to-values (LTVs) on those deals and restrict the acceptable payment vehicles, combined with growing caution among buyers, resulted in 98% of first-time buyers taking out a repayment loan, the highest since CML records began.
The CML said the effect of the end of the holiday, which was launched in March 2010 in an effort to kick-start the housing market, had been felt across the market, as activity at the bottom of the housing ladder allowed people to move further up.
A total of 27,200 loans worth £4.3bn were taken out by home movers in March, up by 25% (19% by value) compared to February, and 15% (10% by value) compared to March 2011.
On a quarterly basis, the lending picture was different, showing a less marked annual improvement than the monthly data. There were 5% fewer first-time buyers in the first quarter compared to the final quarter of 2011, but 33% more than the first quarter of 2011.
Home movers took out 18% fewer loans in the three months to March than in the previous three months, but 14% more than the first three months of 2011.
The CML’s director general, Paul Smee, said: “If lending follows the same pattern as after previous stamp duty concessions, we will likely see a drop in activity in the next few months.
“It will take some time before we can judge whether other initiatives such as the NewBuy scheme and the reinvigorated right-to-buy will compensate for this effect.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said a dip in transaction levels for April onwards was “inevitable”.
“The government is pegging its hopes on the success of NewBuy in helping more first-time buyers on to the ladder. However, with figures out this week indicating there have been only five completions under the scheme, there is a long way to go until its success is proven. The continuing problems in the eurozone are also casting a shadow over the UK housing market with lenders cautious regarding the volumes of lending they are prepared to commit to.”
Peter Rollings, CEO of estate agent Marsh & Parsons, said buyer activity was being knocked by tightened lending criteria and increasing reluctance among lenders to offer mortgages at high LTVs, but that ending the stamp duty holiday was “folly”.
“A vibrant first-time buyer market is the lifeblood of a healthy property market, and the sharp increase in activity in March acted as a catalyst, freeing up property chains and allowing home movers to take advantage also.
“There is clearly still strong demand from buyers looking to get on to the property ladder, and it is crucial that this section of the market is supported rather than hindered by stamp duty tax or overly stringent deposit requirements.”