Further evidence of a revival in the housing market was provided this morning when the Council of Mortgage Lenders (CML) reported that its members granted 16 per cent more home loans in April than in March.
The CML, whose members are banks, building societies and other lenders who together undertake around 98 in every 100 mortgages, said 35,600 loans for house purchases were granted during the month.
While an improvement on the March figures, however, the number of home loans granted in April was down 28 per cent on the same month last year.
Those loans totalled £4.5 billion — which was also up 16 per cent on the total for March — although the total value was down 40 per cent on April last year.
However, the sharpest increase in home loans granted was for people moving property rather than to first-time buyers, who are generally regarded as providing the foundation for any sustained growth in housing activity. Some 22,100 loans were granted in April to people moving home, up 19 per cent on the March figure, while 13,500 loans went to first-time buyers — a less spectacular 13 per cent increase.
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The data also provides evidence that mortgage lenders are continuing to apply tougher lending criteria. The average loan to value for loans to home-movers was 67 per cent — down from 72 per cent in April last year and even down on the March figure of 70 per cent — while lenders were only prepared to lend an average of just 2.63 times a borrower’s income. That compares with an average multiple of 2.97 times incomes in April last year.
Bob Pannell, the CML’s head of research, said that, despite the improvement in April, housing market activity was still “very low” by historical standards. He pointed out that the 35,600 home loans granted in April compared with an average of 88,000 loans during April in the last seven years.
Mr Pannell said there were also signs that borrowers were switching back to fixed-rate deals now that interest rates have hit the bottom. He said that, during April, 69 per cent of borrowers took out fixed rate mortgages — the highest share since June last year — at an average rate of 4.83 per cent.
He added: “With the interest rate cycle now at its floor, an increasing proportion of borrowers are taking out fixed rates, including for longer term periods of 5-10 years. With expectations for rates to remain low in the near future, shorter term fixed-rate deals are less appealing than attractively priced variable rate deals.
“There are tentative signs of house purchase lending stabilising, but we need to see considerably higher transaction levels to underpin house prices.”
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The data comes two days after the Royal Institute of Chartered Surveyors reported that buyer enquiries during May rose for a seventh month running and at the fastest rate since August 1999 and Howard Archer, chief UK economist at consultancy Global Insight, said it was further evidence that house price activity was picking up in response to the dramatic falls in house prices during the last two years and the big cuts in interest rates by the Bank of England during the last year.
Mr Archer said it was possible that his forecast of a further drop of 10 per cent in house prices could turn out to be too pessimistic.
But he added: “Despite the rise in house prices in May reported by both the Halifax and the Nationwide, we are sticking for now to our forecast. However, we do expect there to be increased volatility in house prices over the coming months with some rises occurring. It is not uncommon for there to be months of rising prices when house prices are still trending down.
“Despite markedly rising buyer interest, we believe that the pick-up in actual house purchases is likely to be gradual and fitful for some time to come given ongoing tight credit conditions and still relatively poor economic fundamentals.
“Sharply higher and rising unemployment, very low wage growth and an unwillingness of many people to commit to buying a house when they still have serious concerns about the outlook are all factors that are likely to continue to weigh down on the housing market for some time to come. Meanwhile, it is currently still very difficult for many people to get mortgages, particularly first time buyers — and this situation is likely to improve only gradually.”