Homebuyers’ average deposits and loans reached a new post-recession peak in May 2015 as house prices continue to rise, according to the National Mortgage Index from Mortgage Advice Bureau – the UK’s best known broker brand.
Mortgage applications data shows the average house purchase deposit reached £72,302 last month. This is the highest figure since Mortgage Advice Bureau began recording this in March 2009, surpassing the previous peak of £71,474 from June 2014.
The Index – compiled using data from over 600 brokers and 900 estate agents – also indicates that average loans reached new levels in May with the typical homebuyer applying for a loan of £167,842 last month: 1 percent higher than April’s previous post-recession marker of £166,141.
Rising house prices are requiring consumers to take on bigger loans, but MAB’s analysis shows they are also putting up more of their own funds to climb the property ladder. A 4 percent growth in the average deposit since May 2014 (equivalent to an extra £3,064 of cash or equity) has matched the 4 percent growth in the average loan (equivalent to an extra £5,944 of borrowing).
Table 1: Average deposits have grown at the same pace as average loans over the last year
New affordability measures introduced over the last year are also helping to ensure lending activity remains in check. The average purchase loan-to-value (LTV) peaked at 72 percent in March 2014 before the Mortgage Market Review (MMR) rules took effect on April 26. This has since dropped back to 70 percent last month as the average homebuyer with a mortgage funded 30 percent of the purchase price with their own cash or equity.
Recent house price growth means many home movers are likely to have made significant equity gains in recent years, which help to fund larger deposits for their next house purchase. However, the rise of average deposits is more concerning for first time buyers, who are faced with needing to raise increasingly large sums to get their foot on the property ladder.
Brian Murphy, head of lending at Mortgage Advice Bureau, comments:
“Measures introduced to the mortgage market since the recession mean there are multiple checks and balances to ensure that people do not borrow beyond their means. Thanks to recovering houses prices, many existing homeowners have extra equity in their properties and can balance their borrowing commitments with a significant stake of their own.”
“Putting up a 30 percent deposit helps to unlock some of the best rates on the market and helps keep mortgage payments even more affordable. The rise of deposits is less encouraging for first time buyers, but there is at least some hope that more low cost properties will become available as second- and third-steppers make their move up the ladder.”
“The range of affordable schemes to support first time buyers will soon be boosted by the arrival of the Help to Buy ISA. All the same, the savings scheme will not be enough on its own to solve the long term issues that are driving up prices and deposits across the market.”
Mortgage market recovering from interventions
The latest Index also suggests that access to mortgage finance has started to improve again following a series of regulatory interventions in the market during 2014 that cooled activity.
In the wake of the MMR and additional actions by the Financial Policy Committee (FPC) in June 2014 to protect financial stability, MAB’s data shows the average loan fell for four successive months from £165,463 in June 2014 to £158,791 in October 2014.
However, the average loan has now climbed for four months as lenders grow accustomed to operating under the new rules. These included FPC limits on the volume of new mortgages above 4.5x loan to income and a requirement that borrowers’ finances are stress tested against a 3 percent rise in the Bank of England base rate.
Graph 1: Average purchase loan size has climbed for four successive months
MAB’s data shows the volume of applications for a purchase mortgage was up 14 percent year-on-year in May 2015, while the volume of remortgage applications – although smaller as a percentage of total activity (28 percent) – grew by 41 percent year-on-year.
Brian Murphy, head of lending at Mortgage Advice Bureau, commented:
“The housing and mortgage markets certainly felt an impact from successive changes to mortgage lending criteria last year. However, the rise in applications and increasing loan size prove that it is still possible for consumers to pass the necessary checks and get the support they need to make their house purchase a reality.”