UK mortgage lending picks up, credit conditions seen improving

UK mortgage lending picked up in May, figures from the industry on Thursday showed, while the Bank of England reported slightly higher credit availability for residential mortgages in the second quarter.

After a slow start to the year, 31,100 mortgages were approved for home movers in May, an increase of 4.4% compared to the same month last year, data from the UK Finance trade body showed. The £6.6bn of new lending in the month was up 4.8%. The The average homemover is 39 years old and has a gross household income of £55,000.

Banks completed 32,200 first-time buyer mortgages, up 8.1%, with the value of lending up 12.5% to £5.4bn. UK Finance said the average first-time buyer is aged 30 and has a gross household income of £42,000.

Around 36,000 remortgages were completed in May, up 7.1%, with the value up 6.8% to £6.3bn.

The buy-to-let sector continued to suffering from the recent tax changes, with the number of BTL mortgages down 9.8%.

“The mortgage market is seeing a pre-summer boost, driven by a rise in the number of first-time buyers and strong remortgaging activity," said Jackie Bennett, director of mortgages at UK Finance. "It is also particularly encouraging to see an increase in homemovers, after a period of relative sluggishness in this important segment of the market.

“However, affordability remains a challenge for some prospective buyers and this is reflected by a gradual increase in loan to income multiples.”

Mike Scott, chief property analyst at estate agent Yopa, said: "After a slow start to the year, the UK Finance data shows new life in the housing market."

"The average mortgage is now based on an income multiple of 3.43, up from 3.38 last May. It is somewhat higher for first-time buyers, at 3.65. These are quite large multiples, but they are affordable as long as interest rates remain low, with the average home mover needing only 17.5% of their gross income to service their mortgage, and only 17.3% for first-time buyers.

"Deposits are more of an obstacle, with the average first-time buyer needing to put down 15 per cent of the purchase price, which is £25,000 for the average first-time buyer purchase of £167,500. Home movers are using their equity to put down much bigger deposits, an average of £65,000 on a purchase price of £245,000."

He said based on these trends, Yopa expects the housing market to pick up in the second half of the year, with prices starting to creep upwards again after being virtually flat for the past eight months.

Meanwhile, the Bank of England’s Credit Conditions survey suggested the availability of mortgage credit improved slightly in the second quarter, with a balance of 4% of lenders reporting a rise.

Lenders reported that the economic outlook and house price expectations were mildly negative for the availability of credit, while tight wholesale funding conditions had a fairly strong negative effect. Meanwhile, market share objectives and risk appetite had little overall effect on credit availability during the quarter.

Capital Economics noted that credit availability only improved for lower loan-to-value mortgages. "And while the credit conditions for commercial property were broadly unchanged, for the first time since 2015, lenders expect credit availability to rise next quarter."