Belfast Telegraph

Sunday 4 October 2015

New mortgage rules are 'dampener rather than brake'

By Graeme Evans

Published 12/08/2014

Lending to first-time buyers has stayed at a pre-financial crisis high in June
Lending to first-time buyers has stayed at a pre-financial crisis high in June

New mortgage rules have been more "gentle dampener than hard brake" after lending to first-time buyers stayed at a pre-financial crisis high in June. There were 28,600 loans worth a collective £4.2bn advanced to people taking their first step on the property ladder during the month – the best figure since late 2007, the Council of Mortgage Lenders (CML) said.

Lending to all home-buyers increased month-on-month in June to 60,500 loans, an increase of 5% compared to May and a rise of 15% on a year ago. The value of these loans totalled £10bn, a rise of 6% on a month earlier.

At the end of April, a mortgage lending clampdown was introduced across the industry with the aim of preventing a return to irresponsible lending.

The rules, introduced under the Mortgage Market Review (MMR), force lenders to ask home buyers and people looking to remortgage more detailed questions about their spending habits.

Lenders also have to apply "stress tests" to make sure a loan would still be affordable as and when interest rates rise, often applying a theoretical mortgage rate of 7%.

CML director general Paul Smee said that for the second month running since the rules took effect lending characteristics remain similar to beforehand.

He added: "We now feel confident that, as we would hope, the MMR effect is more gentle dampener than hard brake.

"As we recently suggested in our revised forecasts, lending levels should continue to increase modestly over the course of the year, driven mostly by house purchases but with remortgaging also recovering."

The CML's figures show that first-time buyers taking out mortgages in June typically borrowed 3.43 times their gross income, compared with an average loan-to-income multiple of 3.33 a year ago.

The typical loan size for first-time buyers was £123,865 in June – up from £121,500 in May.

On top of the new MMR rules, the Bank of England announced in June further new curbs for the mortgage market, including that loans of 4.5 times a borrower's income or higher should account for no more than 15% of new mortgages issued by lenders.

Remortgage lending in June totalled 23,600 loans, a slight increase of 1% on May – but a fall of 8% on a year earlier. The value of the loans was both 6% higher than the previous month and a year earlier at £3.7bn.

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