Very high home mover activity and resilient first-time buyer demand pushed mortgage lending up to its highest level since the financial crisis at the end of last year. It’s become clear that the stamp duty holiday is only one of several reasons for the surge in buyer demand, so we now think that house prices will be resilient even when the tax break eventually ends.
Home movers drive strong lending
- Very high home mover activity and resilient first-time buyer demand pushed mortgage lending up to its highest level since the financial crisis at the end of last year. It’s become clear that the stamp duty holiday is only one of several reasons for the surge in buyer demand, so we now think that house prices will be resilient even when the tax break eventually ends. (See here.)
- The Mortgage Lenders and Administrators Statistics for Q4 released by the Bank of England this morning confirm that mortgage lending reached a post-financial crisis peak. Net advances rose by 32% y/y to the highest amount since Q3 2008. And new commitments (lending agreed to be advanced in the coming months) were up 24% y/y, to the highest level since Q3 2007.
- Lending has surged despite an increase in deposit sizes and banks’ interest margins. Among new mortgage lending to owner occupiers, the share of advances with an LTV of over 90% has continued to fall, to 1.4% in Q4 from 4.0% in Q3 and 6.5% a year earlier. Despite the increase in deposit size that implies, the share of mortgage advances with an interest rate less than 2ppts above bank rate fell to 65% in Q4, from 74% in Q3 and 85% a year earlier.
- Remarkably despite this, first-time buyers have maintained their market share. The share of mortgage advances to first-time buyers has risen from 21.4% at the end of last year to 24.3% now. (See Chart 1.) That is consistent with lockdown savings allowing many first-time buyers to upsize their deposit. (See here.)
- But it was been home movers that were the driving force of very high mortgage lending activity. Indeed, the share of mortgage advances issued to home movers rose to 39.6% in Q4, its highest since Q3 2010. (See Chart 1 again). Back then, the increase in movers’ market share was down to other parts of the market collapsing, as opposed to the widespread strength at present. High home mover activity is one explanation why remortgaging has been muted, as households are upping sticks instead. Difficulty remortgaging while furloughed is likely another.
- While credit conditions have tightened in terms of the LTV ratio and interest rates on new lending (although the former may partly be a compositional effect from low remortgaging), loan-to-income ratios have risen which has helped to push up house prices. The proportion of lending to single borrowers with an LTI ratio of over four and joint income borrowers with an LTI ratio of over three rose by 2ppts to 50.2%, continuing an upward trend that has been in place since 2007 and supported by falling interest rates.
Chart 1: Gross Advances by Purpose of Loan
Source: Bank of England
Andrew Wishart, Property Economist, +44 (0)7427 682411, firstname.lastname@example.org