Lack of homes for sale blamed for 'sluggish' lending, but first-time buyers and remortgage customers are 'buoying the market', according to the CML.

What’s the latest?

First-time buyers have overtaken home movers for the first time in more than 20 years as mortgage lending remains subdued.

Gross mortgage lending slumped by 11% in April, dropping to £18.4bn – down from £20.7bn in March – according to the Council of Mortgage Lenders.

The CML, which represents 97% of the nation's residential lending, blamed the dip on the lack of activity among home movers and buy-to-let investors.

Instead, it said lending was being driven by first-time buyers who accounted for a greater share of advances than home movers for the first-time since 1996

Over the past 12 months, the number of first-time buyers reached 345,000, the highest since the start of 2008, the trade body said.Above: This two-bedroom flat for sale in Leicester for £139,950 could suit a first-time buyer or investor 

Why is this happening?

A number of government schemes, as well as record low interest rates are helping more first-time buyers to get on to the property ladder.

CML senior economist Mohammad Jamei explained that, as a result, first-time buyers and remortgage customers "appear to be buoying the market. We expect this trend to continue over the coming months".

However, a number of factors have combined to cause existing homeowners to sit tight.

Short-term uncertainty caused by the General Election and Brexit are deterring some buyers, while others are likely to be put off by the shortage of homes on the market, and stretched affordability caused by recent strong house price growth.

Meanwhile, tax changes affecting landlords have put the dampeners on the buy-to-let sector.

Former Royal Institution of Chartered Surveyors residential chairman, Jeremy Leaf, said: "It is disappointing given that we would have expected the market to be kicking on at this time of year in response to seasonal factors.

"But, it is not, and is making steady rather than spectacular progress, probably more influenced by concerns about what the election and Brexit will do to market prospects in the future."

Who does it affect? 

The CML warned that the low number of home movers would mean fewer properties being put up for sale.

But the fact that existing homeowners are not trading up the ladder does appear to have created a window of opportunity for first-time buyers.

The trade body pointed out that this group was being helped by government support schemes, while existing homeowners had been “left to fend for themselves”.Above: This two-bedroom apartment in Welwyn Garden City for £275,000 is 'ideal for first-time buyers' according to the selling agent

Sounds interesting. What’s the background?

Mark Harris, chief executive of mortgage broker SPF Private Clients, told Zoopla: "Home movers are less able to take advantage of low mortgage rates, with a lack of stock on the market meaning many can't find a home to move to.

"First-time buyer numbers remain strong as government schemes and the 'Bank of Mum and Dad' combine to help them on the housing ladder. It is further up the ladder where things have slowed to a sluggish pace."

On most measures, the housing market has been flat for the past six months.

But while the Bank of England’s Monetary Policy Committee said in its May Inflation Report that it expected house purchase approvals to average 71,000 a month for the rest of the year, the CML said it was less optimistic.

The stamp duty hike for second homes was introduced in April last year.

Since then, the CML explained, the only group of purchasers to grow consistently is that of first-time buyers. 

The situation does not look likely to improve in the near future, with figures from the British Bankers’ Association showing the number of mortgages approved for people buying a property by the major banks slumped to a five-month low in April.

Only 40,750 loans were in the pipeline for those purchasing a home, compared with a recent six-month average of 41,959.

The CML also pointed out that real wage growth came to an end in March for the first time in two-and-a-half years.

With wage growth weak and inflation rising, a sustained period of falling real incomes looks likely, which would exacerbate already stretched housing affordability.

Top 3 takeaways

  •  First-time buyers have overtaken home movers for the first time in more than 20 years
  •  Total mortgage advances slumped by 11% in April, dropping to £18.4bn
  •  The CML blamed the dip on the lack of activity among home movers and buy-to-let investors

You might also be interested in...

 Should Government schemes to help first-time buyers continue to be offered? Tell us by posting a comment below...

comments powered by Disqus