Stamp duty changes push up UK mortgage activity
17-05-2012
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The largest increase was in lending to first time buyers, who took out 24,000 loans in March. This was an increase of 74% compared to February and 57% higher than March 2011.
By value, first time buyers took out loans worth £3 billion, up 76% from the previous month and 67% from March last year. First time buyers accounted for 42% of total house purchase loans, the highest proportion since 2001.
Of those first time buyers taking out a mortgage in March, 63% bought a property valued between £125,000 and £250,000 so were exempt from stamp duty. This compares to an average of around 50% since 2006, except immediately before and after the end of the previous stamp duty concession. Some 98% of first time buyers in March took out a repayment loan, the highest since CML records began.
Although the stamp duty holiday only related to first time buyers, the tendency for property transactions to involve chains resulted in knock on effects to other house purchasers also. Some 27,200 loans, worth £4.3 billion, 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.
Combined, the total increase in the number of house purchase loans in March was 44%, 40% by value, from February and 31%, 30% by value, compared to last March.
Remortgage activity, on the other hand, was essentially flat. Some £3.6 billion was advanced in the month, unchanged from February, and 14% lower than March last year.
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 last year, 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 total value of loans for remortgage also fell in the first quarter of the year. £11 billion was advanced in the first quarter, 7% lower than the previous quarter and a 4% fall compared to the first quarter of 2011.
‘We expected this significant increase in borrowing for March because of the stamp duty holiday. However, 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,’ said CML director general Paul Smee.
Paul Hunt, managing director of Phoebus Software, pointed out that the surge will only be temporary. ‘March’s figures are the crest of a wave. April undoubtedly will show falls on a similar scale,’ he said.
But he believes it could act as a confidence boost for the lending sector. ‘That’s not to say mortgage lending is excessively conservative at the moment. That such a large rise was possible is down to lenders’ confidence in the ability of first time buyers rushing through the closing fiscal window to service debt in the long term. We will see an apparently violent fall in lending next month, but these big fluctuations mask the true picture of ongoing steady progress in the lending market,’ he explained.
