Mortgage lending to buy-to-let landlords has increased significantly in the past year, but approvals for first time buyers has dropped substantially, as young people struggle to break into the housing market due to rising prices, reveals new data.
The Council of Mortgage Lenders (CML) has found that there were 22,7000 mortgages worth a total of £3.4 billion lent to first time buyers in May, a 16% fall on last year. However, this is 1% higher than in April this year.
Additionally, it discovered that lending to property investors rose 22% in the last 12 months. This increase predominantly reflects a jump in remortgaging since the start of the year, with 19,100 buy-to-let loans advanced in
Buy-to-Let Boom Continues as First Time Buyer Levels Drop
May, worth a total £2.7 billion.
The buy-to-let sector has attracted new investors in the last few years, as savers attempt to maximise their funds rather than investing in low interest savings accounts.
Experts have cautioned that new pension rules, which allow pensioners to take as much money out of their retirement funds as they like, could cause the buy-to-let market to grow even further, pushing up prices and making it even more difficult for first time buyers to purchase a property.
The CML also found that lending to home movers was also lower than a year ago, with 26,300 mortgages worth a total £5 billion granted in May. This is 15% down on May 2014, but 2% higher than April this year.
The CML represents banks, building societies and other lenders, which together account for 95% of all residential mortgage lending in the UK. It suggests that the slight monthly improvement mirrors an awakening market after a quiet previous quarter.
House prices grew by 5.7% in May to an average of £274,000, separate data from the Office for National Statistics (ONS) shows.
This is £57,000 higher than the peak recorded in May 2008, just before the financial crash caused a dramatic collapse in the housing market.
The average first time buyer property price has risen by 5.1% to £211,000, the ONS also found.
However, although these prices are higher, competitive mortgage rates mean that first time buyers spend a record low proportion of their monthly income on the capital and interest payments of their mortgages. The CML revealed that this is the lowest level since they began recording in 2005.
Altogether, capital and interest repayments on a mortgage account for 18.2% of a first time buyer’s earnings, while home movers spend 17.7% on the same payments.
Both of these figures are the lowest since the CML began tracking the data ten years ago.
These numbers arrive as the Bank of England (BoE) reports higher demand for mortgages, as rates continue to drop to record lows.
Demand has grown significantly in the three months to May, say lenders, after a substantial drop in the previous three quarters. Lenders claim that demand is at its strongest level since the end of 2013.
Banks have also said that there has been a huge increase in the demand for lending for prime properties and buy-to-lets in the three months to June.