News Column

Help to Buy fuels rise in number of first-time buyers getting loans

February 13, 2014

Hilary Osborne

First-time buyers led a resurgence in the mortgage market in 2013, taking out a larger proportion of new home loans than at any point since the turn of the century, according to data from banks and building societies.

The government's Funding for Lending and Help to Buy schemes have made mortgages more easily available to those stepping on to the housing ladder, particularly those with smaller deposits.

However, the figures from the Council of Mortgage Lenders (CML) showed that, typically, new buyers were raising downpayments of up to 20% but needed a bigger multiple of their income than at any point apart from 2007.

The CML said its members had granted 268,800 first-time buyer mortgages over the year, which made up 44% of the total of 605,100 offered for house purchases. This was the highest percentage since 2000.

The overall figure for house purchase loans was up by 11.2% year-on-year, while first-time buyer numbers increased by almost a quarter.

Despite the increase in the number of purchases, figures remain below those in the years before the financial crisis, when lenders regularly advanced more than 1m loans a year, and first-time buyers often accounted for half of borrowing. In some parts of the country house prices have returned to the level seen in 2007, and the CML said first-time buyers were taking on bigger income multiples and mortgages than at any point since then.

Typically, new borrowers took out loans worth pounds 114,975, or 3.33 times the median salary, up from 3.26 in 2012 and the largest value and multiple since records began in 1974, apart from the figure of pounds 116,549 (or 3.36 times salary) seen in 2007.

The figures come before changes to the mortgage market in April which will see lenders forced to carry out tougher affordability tests before granting loans.

The CML's director general, Paul Smee, said: "The consistent upward lending trend seen throughout 2013 would suggest relative optimism going forward. But there are challenges ahead, not least in implementing the Mortgage Market Review regulation in April and in ensuring that there is no suggestion of a property bubble."

Howard Archer, chief UK economist at IHS Global Insight, said he now expected the Bank of England to take action to prevent a bubble developing.

"We expect the BoE to take further action before long to try and dampen the strength in the housing market, which could very well include recommending [not]to the government that it dilutes the Help to Buy mortgage guarantee scheme.

"In particular, the pounds 600,000 price limit for a house under the scheme could be cut, perhaps to pounds 300,000-pounds 400,000."


Typical size of deposit new buyers put down before taking out loans worth 3.3 times median income, CML data shows

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Source: Guardian (UK)

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