Mortgage lending crashes 11% as housing market faces slowdown

Interest rates at unprecedented lows but many first-time buyers struggle to get on property ladder

(Reuters)

Loans to homeowners crashed by more than 10 per cent in the past year despite record-low interest rates, in another sign that the housing market is entering a slowdown.

First-time buyers borrowed 8 per cent less in October than in September, while loans to home-movers were down 9 per cent.

Even with mortgage rates at unprecedented lows many first-time buyers have struggled to get on to the property ladder – prices have moved out of reach while lenders have toughened their eligibility criteria.

By contrast, remortgages were one of the few areas of growth, reaching their highest level since January 2009 following an 11 per cent rise in a month.

The numbers will fuel fears of a “two-tier” housing market with existing homeowners able to use their equity to refinance at ultra-low rates while others are locked out, trapped in increasingly unaffordable rental accommodation.

Jeremy Duncombe, director of Legal & General Mortgage Club, said: “Remortgaging figures continue to rise annually as consumers take advantage of the record low fixed-rates dominating the market.”

But he said the issue of housing supply is still a “huge factor” in the housing market, adding that “the housing market remains burdened with spiralling property prices affecting affordability levels”.

Andrew McPhillips, chief economist at Yorkshire Building Society said the country faces a deficit of 1.2 million homes. He said latest figures show the “continuous rise in house prices which are beyond the affordability for many”.

Home-movers borrowed £5.9bn, down 9 per cent on a month earlier and almost a fifth on this time last year. But the biggest crash was in buy-to-let loans, which have plunged 44 per cent since October 2015.

Paul Smee, director general of the Council of Mortgage Lenders, said lending for buy-to-let properties remained “weak”, following a stamp duty hike for second home purchases, which came into force on 1 April.

Mr Smee said the lower buy-to-let lending figures were “likely to be the new normal”.

But he said of the relatively strong remortgage lending figures: “This appears to be linked to borrowers taking advantage of the repricing of mortgages following the base-rate cut.”

Consumer confidence dropped markedly in November amid mounting concerns over the economy and Brexit-induced inflation. “We believe the fundamentals for house-buyers will progressively deteriorate during 2017 with consumers’ purchasing power weakening markedly and the labour market likely softening.”