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Home loans in the UK decline by 21 per cent in February

The lowest rate of decline since May 2011.

Home loans in the UK declined to 46,499 in February 2012, a decrease of 21 per cent compared to last month, due to the sharp decline in first-time buyers, according to the latest mortgage monitor from e.surv, a chartered surveyors firm.

Signs of underlying weakness troubling the home market were found during February.

Richard Sexton, director of e.surv, said:

The stampede of first time buyers rushing to beat the stamp duty deadline bloated the January figures out of all recognition. They created an artificial spike in approvals, which shouldn’t be misconstrued as a sign the market is resuscitating in the long-term. At first glance the drop in approvals during February looks alarming, but it is a return to normality after an abnormally frantic winter.

Loans for purchases under £250,000 declined from 43,459 in January to 33,944 in February.

The average loan-to-value (LTV) fell to 61 per cent due to unwillingness from lenders to sanction loans to low-income borrowers. There were only 5,533 such loans in February, down from 7,870 in January, said e.surv.

Sexton added:

Harder times for the market lurk in wait. Borrowers may find lenders notifying them of higher rates to cover their increased funding costs, as we have already seen with Halifax’s SVR mortgages, and with RBS on two of their product lines. Weak funding conditions mean lenders won’t be in a position to increase net lending – the truest indicator of a healthy market - beyond around £6bn this year, which is still painfully low compared the mid-2000s. Plenty of would-be buyers will be left out in the cold.

Loans surged last month as new buyers tried to complete home loan approvals before the end of the stamp duty holiday.

Sexton said:

The first time buyer market looks set to enter a trough as it rebalances itself in the aftermath of the swollen activity of the last few months. Lending conditions aren’t any easier for new buyers, and they still have to cross a high threshold to secure a mortgage at an affordable rate.

In addition, the speed of year-on-year growth also declined from 29.6 per cent in January to 1.6 per cent in February, marking the lowest in seven months.