End of stamp-duty holiday brings housing market shuddering to halt

THE number of mortgages granted to first-time buyers more than halved in January as the end of the temporary stamp duty concession brought the property market revival to an abrupt halt.

And lenders yesterday warned that the market would be subdued for the foreseeable future as funds with which to lend remain in short supply.

The Council of Mortgage Lenders (CML) yesterday revealed that loans to first-time buyers slumped 54 per cent to just 11,300 in January, with all loans for house purchase almost halved to 32,000. It was the third lowest level of approvals for first-time buyers on record, ahead of only January and February last year.

The decline in first-time buyer lending had been expected after the end of the year-long stamp duty threshold increase from 125,000 to 175,000.

The concession had been introduced by the government to kick-start the housing market and there was a surge of activity in the closing months of 2009 before the 1 per cent stamp duty tax reverted to the 125,000 figure on 1 January.

CML director general Michael Coogan said the end of the stamp duty holiday distorted lending figures for December and January. But he added he expected little improvement in the near future.

"When December and January data are taken together, they show little change in underlying market conditions compared with recent months, with activity still slow but well up on the lows of a year earlier. We expect lending over the coming months to remain weak."

The number of homeowners remortgaging also slumped dramatically in January, according to the CML. It said lenders approved 24,000 remortgage loans worth 3 billion, a record low and compared with 45,000 loans worth 6.2bn in January last year.

The latest figures follow reports from both Halifax and Nationwide that house prices fell in February, reinforcing impressions that the steady housing market recovery, which began a year ago, has now run out of steam.

Howard Archer, chief European and UK economist at IHS Global Insight, said: "The marked relapse in mortgage activity in January reported by the CML fuels our suspicion that house prices are likely to be prone to falls in 2010 and will be essentially flat over the year."

And Douglas Cochrane, chairman of the Council of Mortgage Lenders in Scotland, yesterday warned that with funds for mortgage lending still restricted, the prospects of an upturn in the market are distant.

Speaking at the annual CML Scotland lunch at the Balmoral hotel in Edinburgh, Mr Cochrane said: "There remains a dearth of funds in the finance sector for mortgage lending.

"Active lenders, of which there are only a handful doing volume, require the benefit of the fiercely contested deposit (savings] market to subsidise lending programmes."

He added that with few signs of activity in the wholesale money markets, lenders without savings business are unable to return to the housing market in any scale, while the supply of competitive deals for first-time buyers without substantial deposits is likely to remain restricted, .

"Prudent capital adequacy requirements also act as a limiter to higher loan-to-value lending and an obstacle to new and re-entrants to the market," said Mr Cochrane.