Mortgages to first-time buyers hits two-year high

The number of loans to first-time buyers hit a two-year high in December 2009, driven by a rush to buy properties in the £125,000 - £175,000 bracket before the year-end stamp duty concession expired, according to figures released by the Council of Mortgage Lenders.

The CML has also published new analysis showing how affordability, especially for first-time buyers, is complicated by the effect of low interest rates when capital repayments are taken into account.

December saw 24,900 loans to first-time buyers, the highest number since November 2007. At £2.9 billion, first-time buyer loans rose 26% from November both by volume and value.

55% of house purchase loans were on properties costing under £175,000 and therefore exempt from stamp duty, up from 51% in November. 10,300 first-time buyers and 11,200 home movers bought a property of between £125,000 and £175,000 in December, up 63% from 6,300 and 49% from 7,500 respectively from November. This clearly indicates a rush to complete purchases before January, when stamp duty would have added an additional 1% of the purchase price onto the transaction costs.

House purchase lending in general totalled 63,000 loans worth £8.5 billion in December, up from 51,000 (£7.1 billion) in November and from 33,000 (£4.4 billion) in December 08. The number of loans for remortgage stayed the same as November at 28,000, with the value falling from £3.5 billion to £3.4 billion, and was down from 41,000 transactions (£5.7 billion) in December 2008.

Because of the unprecedentedly low volume of transactions in the early months of the year, 2009 was very weak overall. Total lending was £143.6 billion, down 43% from £254.1 billion in 2008 and down 60% from the highest number on record of £362.6 billion in 2007.

The total number of house purchase loans for the year was 517,000, fractionally up from 516,200 in 2008 but just over half of the pre credit crunch level in 2007 of 1,015,100. First-time buyer loans accounted for 198,200 of these, up slightly from 193,700 in 2008 but down 44% from 357,100 in 2007. There were also 318,700 home mover loans in 2009, down slightly from 322,500 in 2008 but down 52% from 657,800 in 2007.

A new CML research article released today examines the different measures of mortgage and housing affordability. In particular, it highlights the fact that low interest rates, while clearly helpful to affordability, do mean that repayment mortgages experience a higher level of capital repayment which subdues the beneficial effect.

The article compares and contrasts the conventional measures of affordability and assesses the limitations of each. It reflects on the ability of first-time buyers to get onto the housing ladder and how to assess affordability in this low interest rate environment.

Bob Pannell, author of the research, said today: "With 90% of loans advanced in December being repayment mortgages, it would seem appropriate to take capital payments into account when assessing affordability.

"Typical capital and interest payments for a recent first-time buyer would represent about 21% of pretax income. This is considerably more than the 14-15% that mortgage interest costs alone would be, and demonstrates why using initial mortgage interest costs to assess affordability risks giving an overly flattering picture."