Mortgage firms reveal big rise in loans to first-time buyers

Published on Thursday 11 June 2009 21:38

MORE evidence of a recovery in the housing market emerged yesterday, with a sharp rise in loans to first-time buyers.

The Council of Mortgage Lenders (CML) said 13,500 loans worth 1.4 billion had been given to first-time buyers in April, an increase of 11 per cent on the March figure.

The total was well up on January's low of 8,900 first-time buyer loans but still 28 per cent down on April last year.

First-time buyers put down an average deposit of 25 per cent, compared with 11 per cent in the same month in 2008.

The CML also revealed that first-time buyers now typically spend 15 per cent of their income to cover mortgage repayments, the lowest in five years.

Ashley Brown, managing director of mortgage broker Moneysprite, said the rise in first-time buyer loans was encouraging.

"Affordability is the key, and the combination of low prices, lenders easing their borrowing criteria and first-time buyers having the funds available to put down 25 per cent-plus deposits, is making house purchasing the most affordable it's been for some time," he said.

Overall, house purchase loans were 28 per cent down in April compared with the same month last year, but 16 per cent up on March.

Howard Archer, the chief UK and European economist at IHS Global Insight, said that, while mortgage activity remained at a historic low, the CML figures offered cause for optimism.

"The CML mortgage data add to the mounting and now widespread evidence that house price activity is picking up in response to the substantial fall in house prices from their 2007 peak levels and markedly reduced mortgage rates," he said.

Earlier this week, the Royal Institute of Chartered Surveyors reported that buyer inquiries in Scotland rose for the seventh consecutive month in May, while Nationwide and Halifax both recorded house price increases last month.

The CML also said the number of borrowers taking out fixed-rate mortgages in April was at its highest since last June. It said 69 per cent of borrowers took out such mortgages, at an average rate of 4.83 per cent, on the assumption that the base rate had hit its floor at 0.5 per cent.

Bob Pannell, head of research at the CML, said: "With expectations for rates to remain low in the near future, shorter-term fixed-rate deals are less appealing than attractively priced variable rate deals."

Some fixed-rate prices are already rising. Nationwide yesterday said it was increasing its fixed rate deals by an average of 0.2 points. Its move, likely to followed by other lenders, was in response to a sharp rise in swap rates, on which fixed-rate mortgage pricing is based.