Posted on 14 January 2015 by
The CML today released the breakdown of November’s previously announced total mortgage lending figures, which are based on completions. These showed a continuation of the recent slowdown.
For example in 2013 gross lending decreased from £17.620bn in October to £16.924bn in November, a fall of 4%. In 2014 the fall accelerated to 9.2%, from £18.618bn to £16.900bn. This acceleration reflects the fact that housing market activity was still strong this time last year, whereas by the second half of this year it had run out steam. This was also reflected in the house prices indices, where growth was concentrated in the first half of the year.
The total Buy to Let figures are often compared with the figures for house purchase but this is very misleading because the trend for purchases and remortgages often varies and there is a huge difference in the split of residential lending between purchase and remortgage compared with the same split for BTL.
The November figures are fairly typical of recent months and the splits by volume of mortgages, rather than value, are as follows:
Residential: Purchases 70%; Remortgages 30%
BTL: Purchases 51%; Remortgages 49%
People normally remortgage either to get a better rate or to increase their borrowing, and in the current market those looking to do the latter can normally also achieve the former. With residential remortgages if the loan size is being increased the most common reason is for an extension or home improvements. However, with BTL the most common reason is to raise a deposit to buy another BTL property.
As the return on BTL investments continues to be good in most locations the incentive for an existing landlord to expand the portfolio is clear and with rents stable or increasing slightly, but BTL mortgage rates falling profitability on a revenue basis is improving.
Furthermore, as the value of most BTL investments has increased, the ability to extract equity for the deposit on another BTL purchase has also increased, although most lenders want to know details of the proposed purchase before they will approve a remortgage for this purpose.
This is why remortgaging in the BTL market is much stronger than in the residential market.
It is helpful to bear that background in mind when looking at the percentage changes in November completions.
Compared to October 2014 these are as follows:
The year on year figured, so compared to Nov 2013, are:
These figures demonstrate that on a month on month basis there is a negligible difference between the percentage fall in residential and BTL purchases, and likewise remortgages. However, the numbers for FTBs have not only fallen less than purchases by movers but have also slightly less than BTL purchases.
On a year on year basis BTL purchases have significantly outperformed residential purchases but FTB purchases have fallen much less than purchases by movers. By far the biggest factor in FTB purchases holding up better was the much greater availability of 95% LTV mortgages.
Although 95% LTV mortgages were available before Help to Buy 2 was introduced, its launch resulted in a big increase in the availability of high LTV mortgages. HTB2 was introduced in Oct 2013 but there were very few completions before 2014 and hence it will have had a negligible impact on the November 2013 lending figures.
Further evidence of the impact of HTB2 is that the average LTV for FTBs increased from 80% in Nov 2013 to 83% in Nov 2014.
As one would expect average loan sizes have increased over the year to reflect increased property prices/values, and for FTBs also because of the increase in average LTVs. Thus for FTBs the year on year 3.4% fall in the number of purchases becomes a 5.6% increase in the value of purchases.
The CML very sensibly uses actual numbers for its mortgage lending figures and so it is easy to get a clear understanding of what is actually happening from its press release, although it would be helpful if its press release included 14 months total lending figures rather than 13, as this would make it easier to compare the month on month change in the current year with the same months the previous year.
However, once has to be very careful using the publicised mortgage approval numbers from the Bank of England’s monthly press release as a guide for the subsequent lending figures because it only shows seasonally adjusted figures, although it does now helpfully include a link which makes it easier to go the relevant page on its web site (Table A5.4) to obtain the actual figures.
Because December and January are usually the quietest months for mortgage approvals the manipulation to arrive at a seasonally figure is massive in these two months. For example last winter the publicised figure for December approvals was 36% higher than the real figure and in January the increase was an even bigger 43%.
Actual mortgage approval numbers have fallen every month since August last year and there is no reason to think that trend will change in December, but the seasonally adjusted figures will disguise the quantum of change.
The views expressed here are those of the author and do not necessarily represent or reflect the views of John Charcol Ltd
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and neither Charcol Limited nor Ray Boulger will accept liability for them.