Scottish mortgage market begins to stabilise

New data from the Council of Mortgage lenders shows lending activity in Scotland began to stabilise in the second quarter, mirroring the trend seen in the UK more widely.

In the second quarter of 2009 there were 11,400 house purchase loans taken out in Scotland, a 50% rise from 7,600 in the previous quarter, but 39% below the same quarter a year earlier.

The rise in mortgage lending in Scotland was spread evenly across first-time buyers and home movers. There were 4,300 loans to first-time buyers, up 54% from the previous quarter, and 7,200 loans to home movers, up 53% from the first quarter.

There is some evidence that the tightening in lending criteria is slowing. First-time buyers typically put down a 25% deposit in the second quarter, unchanged from the previous quarter but up from 13% a year earlier. Home movers typically borrowed 70% of the property's value, down from 71% in the previous quarter and 73% in the same quarter a year earlier.

Income multiples rose modestly in the second quarter. First-time buyers typically borrowed 2.85 times their income (3.06 across the UK), up from 2.74 in the first quarter of 2009. Home movers typically borrowed 2.55 times their income (2.73 across the UK), compared with 2.51 in the previous quarter.

Scottish first-time buyers typically spent 14.1% of their income on mortgage interest payments (compared with 15% across the UK), the lowest share since the first quarter of 2006. And interest payments typically consumed 11.1% of Scottish home movers' income (compared with 11.3% across the UK), the lowest share since the second quarter of 2004.

Mortgages are slightly more affordable in Scotland. This is principally because house prices remain lower than the UK average, leading to modestly lower average income multiples and debt servicing costs.

Remortgage activity remains subdued, with demand suppressed by attractive reversion rates and access to the best deals restricted to those with large amounts of equity. There were 9,000 remortgage loans in Scotland in the second quarter, worth £900 million, compared with 11,000 loans worth £1.6 billion in the first quarter of 2009. As with house purchase lending, this pattern echoes what is happening across the UK.

CML Policy consultant Kennedy Foster said: "Lending in the Scottish mortgage market is beginning to stabilise, albeit at very low levels. This is encouraging and mirrors the pick up in the housing market. But it will be a slow path to full recovery with significant obstacles presented by the restricted access to mortgage funding, fewer active mortgage lenders in the market, rising unemployment and limited consumer demand."