News Column

New mortgage rules show little impact on latest loan figures

July 11, 2014

Lisa Bachelor,

New rules designed to make it harder to take out a mortgage have had little impact on the ability of people to buy property so far, according to mortgage lenders.

The number of loans to first-time buyers rose by 9% in May 2014 compared to April and was 19% higher than in May 2013, the Council of Mortgage Lenders said. By value, lending to first-tme buyers was up 11% on April and 30% higher than last May. The number of loans to homeowners moving house also rose in May, up 8% from the previous month.

"With May lending figures, we get our first glimpse at the effect the mortgage market review (MMR) has had on lending trends and, at least so far, the impact appears subtle, rather than dramatic," said Paul Smee, director general of the CML. "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."

In April new changes came into force, following the City regulator's MMR, which have meant that would-be borrowers are now asked to give more detail about their spending when they apply for a home loan. Borrowing is based on how much they have left after regular expenditure, rather than on their income, and lenders have to check that people would still be able to afford repayments if interest rates rise.

The rules do not apply to buy-to-let (BTL) lending and there is evidence that landlords are continuing to invest heavily in a competitive rental market. The number of BTL loans taken out to buy properties rather than to remortgage rose 7% from April and 21% annually, according to the CML. The loans totalled 1.1bn in value, 38% higher than in May 2013.

Some lenders are expected to focus on BTL to drive up volume, with several already having improved their range of BTL loans in recent weeks. For example, Accord, a major BTL lender, has increased its maximum loan size to 1m from 300k, while Platform, Post Office and Virgin have all improved their offers to landlords, according to broker SPF Private Clients.

"The CML figures show that the buy-to-let sector continues to perform well," said Adrian Anderson, director of mortgage broker Anderson Harris. "Over the past couple of months in particular, lenders have been channelling their energies into buy-to-let, improving rates and easing criteria. Over-onerous rules, such as borrowers having to be experienced landlords or earning significant minimum incomes have eased a little, making buy-to-let an even more attractive investment."

In contradiction to the CML, the Royal Institution of Chartered Surveyors (Rics) said MMR, coupled with a strong signal from the Bank of England's governor, Mark Carney, that he is prepared to act to cool the market if necessary, had helped dampen the housing market in June. This was particularly noticeable in London, Rics said.

Anderson said the impact of MMR was "too early to call". "While some lenders were MMR-compliant ahead of the official launch at the end of April, using May data to assess the impact of the new rules is perhaps premature," he said. "People are still able to take out new mortgages and to remortgage but it is taking longer, and borrowers may find they have to compromise in terms of rates and loan-to-values."

In contrast to the increased lending for house purchases, the number of remortgage loans declined markedly in May. It fell 18% month-on-month and 26% on May last year.

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Source: Guardian Web

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