You'd be crazy to buy a home right now

Wrong move not Rightmove: First-time buyers will get burnt if they pile into the overheated London market

 

  

When my most conservative of friends are rushing to buy their first home in Twickenham, before the area becomes even more expensive, you know the Greater London market is overheating.

Despite various signals that the capital's core and commuter zones, which have enjoyed rampant price growth over the last two years, is starting to cool, those in their late 20s and early 30s are still talking about buying.

New findings from Knight Frank and Markit Economics show us that 6.7% of householders polled intend to move within the next year.

Undeterred by looming interest rate rises, this group has grown from 6.2% in June, is higher than the 6.5% reported in May and 5.1% in April, according to an Ipsos Mori Poll.

While such "PR" suits estates agent talking up the market, now is not the time to buy your first home.

There has been a wave of panic across Greater London as first time buyers (FTB) stretch themselves to get on the property ladder in their area before price rises shut them out of the market altogether.

This, of course, has been self-perpetuating, driving values up further, with open house viewings and sealed bid competitions common practice.

But these price hikes - 20% over the last 12 months to May, are not sustainable and not supported by wage growth.

 

 

The mainstream London market is already showing signs of cooling - as property portal Rightmove tells us today. In fact, the rate of growth, month-on-month, has started to slow earlier this year and today we see our first drop of 0.4% in Greater London. We've hit an affordability ceiling until pay packets and the economic recovery catch up.

An expensive business

It's not just the extraordinarily high house prices that should make you wince but all the associated, long term costs.

Interest rate rises are looming and now is not the time to stretch yourself, with incremental increases expected from November onwards.

With the introduction of the Mortgage Market Review in April - stricter lending guidelines designed to curb the irresponsible practices seen prior to the 2008 housing market crash - the interest-only mortgage is becoming extinct.

First-time buyers now need enough monthly income available to make full repayments - which are far higher than an interest-only commitment. Sensible in the long run as you're effectively saving, but a hefty financial burden all the same in the early fragile stages of an economic recovery.

Buying a home is expensive - not to mention stressful - and analysts tell us that a FTB needs £70,000 cash just to make the move thanks to removal costs, estate agent fees and stamp duty.

The cost of the average first-time-buyer dwelling in London is £351,783, with a 3pc stamp duty fee attached to that. In Clapham, south west London, that gets you a two-bed flat in an ex-council tower block.


 

 

http://propertyportfolioinyorkshire.blogspot.com/2014/08/youd-be-crazy-to-buy-home-right-now.html

 

MMR impact on lending appears subtle, rather than dramatic, says CML

New CML data released today on the profile of UK lending in May 2014, including first-time buyer, home mover, re-mortgagor and buy-to-let lending, shows:

 

• The number of loans to first-time buyers rose by 9% in May compared to April, and was 19% higher than in May 2013. By value, lending to first-time buyers was up 11% on April and 30% higher than in May last year.
• Both the number and value of loans to home movers increased month-on-month in May by 8%. Compared with May 2013, growth was up 9% by volume and 21% in value.
• Reflecting these trends, overall home-owner house purchase lending in May rose 9% on April by both volume and value, with year-on-year growth in number of loans up 13% and 25% by value.
• Remortgage lending dipped in May, down 18% in number and value compared to April. Compared to May 2013, remortgage lending declined 26% in volume and 15% by value.
• The monthly number of buy-to-let loans was up 4% in May with value up by 5%. Compared to April 2013, there was a 14% increase in number of loans and a 22% increase in overall value. 

The Bank of England reported earlier this month gross UK mortgage lending was £16.8 billion in May, a 2% increase compared to April and 14% higher than the total in May last year. 

Lending for home-owner house purchase

Home-owner house purchase lending in May increased month-on-month totalling 57,900 loans, up 9% compared to April, and the value of these loans totalled £9.6bn, also a rise of 9% on April. Compared to May 2013, the number of loans increased by 13% and the value of lending by 25%.    

Chart 1: Number of loans for home-owner house purchase per month

 

Source: CML

Table 1: Loans for home-owner house purchase and remortgage

	Number of housepurchase loans	Value of house purchase loans, £m	Number of remortgage loans	Value of remortgageloans, £m
May 2014	57,900	9,600	21,600	3,300
Change from April 2014	8.8%	9.1%	-17.9%	-17.5%
Change from May 2013	13.1%	24.7%	-26.3%	-15.4%

Lending to first-time buyers

First-time buyers took out 26,800 loans in May, up 9% compared to April and 19% more than in May 2013. The total value of these loans was £3.9bn, which was up 11% on April and 30% on May last year.

First-time buyer affordability changed fractionally, with first-time buyers typically borrowing 3.43 times their gross income, compared to 3.42 in April. The typical loan size for first-time buyers was £123,200 in May, up from £121,500 in April. The typical gross income of a first-time buyer household remained unchanged at £37,000 compared to April.

The relatively low level of interest rates means borrowers' payment burden remains relatively low at 19.5% of gross income being spent to cover capital and interest payments, this remained unchanged from April but up from 19.3% in May 2013. 

Chart 2: Number of loans advanced to first-time buyers per month

 

Source: CML

Table 2: First-time buyers, lending and affordability

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
May 2014	26,800	3,900	84%	3.43	11.7%	19.5%
Change from April 2014	9.4%	11.4%	83%	3.42	11.6%	19.5%
Change from May 2014	18.6%	30.0%	82%	3.29	12.1%	19.3%

Lending to home movers

The number of loans advanced to home movers for house purchase totalled 31,100 in May, up 8% compared to April and 9% compared to May 2013. Home mover loans totalled £5.7bn in value in May, which was up 8% on March and up 21% on May last year.   

Chart 3: Number of loans advanced to home movers per month

 

Source: CML

Table 3: Home movers, lending and affordability

	Number of loans	Value of loans £m	Average loan to value	Average income multiple	Proportion of income spent on interest payments	Proportion of income spent on capital and interest payments
May 2014	31,100	5,700	73%	3.07	8.9%	18.8%
Change from April 2014	8.4%	7.5%	72%	3.03	8.8%	18.6%
Change from May 2013	9.1%	21.3%	70%	2.87	9.0%	18.2%

Lending to home owners for remortgage

Home-owner remortgage activity in May totalled 21,600 remortgage loans advanced in the period. Unlike house purchase loans, the number of remortgage loans declined in May compared to April, down 18% and down 26% on May last year. These loans totalled £3.3bn in value, a decrease of 18% month-on-month and down 15% compared to May 2013.

Chart 4: Number of loans advanced for remortgage per month

 

Source: CML

Lending for buy-to-let

Buy-to-let lending in May totalled £2.2bn, representing 16,000 loans. This was up 4% in number of loans compared to April and up 5% in value. Compared to May 2013, this was a 14% increase by volume and 22% by value.

Within the overall total of buy-to-let loans, 8,700 were for house purchase and 7,100 for remortgage. The total number of buy-to-let house purchase loans was up 7% compared to April and up 21% compared to May last year. The loans totalled £1.1bn in value, up 10% month-on-month and up 38% on May last year. 

The number of remortgage loans declined slightly compared to April, down 1% in total number of loans but up 6% compared to May last year. These loans had a total value of £1.1bn, unchanged on April but up 22% compared to May last year.

Chart 5: Number of buy-to-let loans advanced for house purchase and remortgage per month

 

Source: CML

Table 4: Loans for buy-to-let house purchase and remortgage

	Number of Gross BTL advances in period	Value of Gross BTL advances, £m	Number of BTL house purchase loans	Value of BTL house purchase loans, £m	Number of BTL  remortgage loans	Value of BTL remortgageloans, £m
May 2014	16,000	2,200	8,700	1,100	7,100	1,100
Change from April 2014	3.9%	4.8%	7.4%	10.0%	-1.4%	0.0%
Change from May 2013	14.3%	22.2%	21.2%	37.5%	6.4%	22.2%

Paul Smee, director general of the CML, commented: 

“With May lending figures, we get our first glimpse at the effect the Mortgage Market Review has had on lending trends and, at least so far, the impact appears subtle, rather than dramatic. First-time buyers and home movers continue to be key drivers in market growth and their activity does not seem to have been noticeably disrupted. There was no cliff edge; lenders and intermediaries had been methodically working towards applying MMR changes for months leading up to implementation and the figures appear to reflect this."

Notes to editors

1. The Council of Mortgage Lenders' members are banks, building societies and other lenders who together undertake around 95% of all residential mortgage lending in the UK. There are 11.3 million mortgages in the UK, with loans worth over £1.2 trillion.

2. Source: CML Regulated Mortgage Survey for all home-owner mortgage data. Buy-to-let data is sourced from a sample of CML members and has been grossed to estimate the industry total. The CML began collecting monthly data in January 2013 and will from now on report monthly buy-to-let data in this press releases, alongside our home owner house purchase data. 

3. The Council of Mortgage Lenders does not publish statistics for mortgage approvals. The data in our monthly Regulated Mortgage Survey and gross lending press releases relate to mortgage advances only. A mortgage approval is the firm offer to a customer of a specific amount of credit secured against a particular property. A mortgage advance is the total amount of loan actually provided to the buyer, by the lender. Please see the mortgage statistics timeline on our website for further information.

4. The June 2014 data will be released on Monday 11 August 2014.