The Council of Mortgage Lenders (CML) and the Royal Institution of Chartered Surveyors (RICS) both report signs that the housing market could be recovering. While government initiatives have concentrated on encouraging the new-build market and first-time buyers, it looks as if more existing home-owners are now looking to move home.
The CML monthly report shows that the demand for mortgage finance has increased, always a sign of increased activity in the housing market.
First-time buyer activity remained strong in March with the number of first-time buyers increasing by 20%. There was also a small rise in the number of home movers.
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Increased lending to home movers as well as first-time buyers
A total of 19,100 loans (worth £2.4 billion) were advanced to first-time buyers in March, up from 15,900 loans in February.
Lending to home movers also increased by 11% in March, with a total of 22,900 loans (worth £3.8 billion) being made advanced to people moving home.
Surveyors across the country report that enquiries from new buyers continue to increase. This seems to demonstrate that the government’s new Help to Buy scheme announced in the Budget has had an immediate impact – even though part of it does not come into effect until next January.
The RICS says that the increased interest in the sales market also reflects in part the success of the Funding for Lending Scheme in both bringing down mortgage rates and encouraging lenders to lend higher loan-to-value (LTV) multiples.
90% mortgages encourage buyers back to the market
Lenders are now offering higher LTV mortgages, even without the HTB initiative. For some years new buyers have had to find at least a 20% deposit, but there has been a gradual increase in the proportion of first-time buyers taking out loans with a deposit of 10% or less.
In the first quarter of the year 1 in 4 first-time buyers put down a deposit at 10% or less – up from 1 in 5 in the first quarter of last year. First-time buyers also typically borrowed a slightly larger amount in March than in February, both in absolute terms and relative to their income.
CML director general Paul Smee says: “More borrowers are taking out higher loan-to-value mortgages than any other time in the last four years – a sign that lenders are open for business, and that borrowers, even those without a large deposit, are increasingly able to get a foot on the property ladder.”
Increased demand and Help to Buy initiative could lead to rise in property prices
Some commentators are now suggesting that this increase in demand coupled with more readily available finance could lead to a more substantial rise in property prices. Figure from the RICS show that while new instructions to agents rose in April there has been a more rapid rise in demand than supply.
RICS Surveyors are now think average prices are likely to rise by just over 1% over the next twelve months compared with expectations of just 0.1% back in December. They also think that the next five years will see average house prices by just over 3.5% per annum.
This should encourage home-owners who want to move but have been delaying putting their homes on the market. House-builders cannot quickly respond to increased demand, so more buyers will therefore consider buying existing properties.
Demand should also increase when Help To Buy mortgage guarantees become available. Such guarantees will be open to home movers as well as first-time buyers from January 2014 and will enable borrowers to obtain a mortgage with a deposit of only 5% of the purchase price.
Brighter outlook for the future
The housing market is still fragile, and signs of recovery are patchy across the country as a whole. However today’s forecast from the Bank of England of “a modest and sustained recovery over the next three years” should give more confidence to homebuyers.
Clive Rutland FRICS, of Southampton, comments “Signs of sustained first time buyer activity is supporting increased demand from second time buyers not seen for 6 years. The signs of a ‘normal’ market are emerging without reliance on cash buyers to the same extent. This may continue for the foreseeable future. This has not affected the full range of properties but is expected to over 1 – 3 years if there are no major economic shocks.”