It's a tale of two halves for those hoping to get on the housing ladder. On the one hand, the level of mortgage approvals has dropped – indicating that fewer people are being accepted for home loans – but on the other, affordability among homeowners seems to be improving, with the level of arrears and repossessions falling rapidly.
Figures from e.surv's latest Mortgage Monitor have revealed a sharp fall in the level of mortgage lending, with approvals falling by 6% between March and April. In fact, the total number of approvals reached 63,170 – not only being 6% lower than March, but a whopping 17% lower than January when the figure stood at 76,251.
This would indicate a clear slowdown in the market, with further analysis suggesting it could be the result of tighter regulation following the Mortgage Market Review (MMR). The new rules have meant potential borrowers are facing stricter affordability checks, and the fall in approvals could well indicate that lenders are turning down more applicants as a result.
There are industry expectations that the slowdown could continue, at least in the short-term, helped by the continuing lack of available properties. Fewer houses mean momentum in the housing market is stalling, but at the same time it's putting upwards pressure on prices which could lead to even greater difficulty in proving affordability.
Richard Sexton, director of e.surv, explains: "The new MMR regulations introduced last month have temporarily slowed lending in the market. Borrowers must now prove that they can withstand potential interest rate rises up to 7%, as well as answering a host of detailed questions about future finances.
"But the slowdown has also come from the supply side. Lenders have invested time training staff and implementing lengthier advisory meetings, which has capped their capacity to process applications. It has led to an interim lending lull. But this is more than made up for by the benefits of the new system: ensuring lending is sustainable and borrowers can afford their repayments even when the base rate begins rising."
It may be a frustrating situation in the short-term but could prove to be a lot more beneficial in the long-run, and there's still good news, particularly for those yet to buy their first home.
The market remains very much accessible to first-time buyers with 15% of house purchase approvals being made to high-LTV borrowers – typically the preserve of the first-time buyer, with the figure being 48% higher than the year before – which would happily suggest that stricter rules don't necessarily mean that the door is closed to those still to get on the ladder, with the Help to Buy scheme encouraging banks to lend at this level.
Meanwhile additional figures from the Council of Mortgage Lenders indicate that affordability is improving, with both the number and proportion of borrowers in arrears having fallen to the lowest levels since 2008.
The number of mortgages in arrears of more than 2.5% of the total balance has fallen to 138,200, while the proportion of borrowers in this predicament is just 1.24%. This is down from figures of 144,600 and 1.29% at the end of last year, showing how rapidly affordability is improving, with fewer borrowers finding themselves in severe financial difficulty.
Repossessions have also fallen, this time posting a drop of 20% year-on-year – at the end of the first quarter there were just 6,400 homes repossessed, while a year ago this figure stood at 8,000.
It's a fairly positive picture for the market at large, and for those looking to get on (or move up) the ladder. Although mortgage approvals may be falling it's hoped that things could pick up once the market adjusts to the new rules, and the fact that fewer borrowers are finding themselves struggling is surely a good thing.
The key to both mortgage acceptance and avoiding arrears is to ensure you're not overstretched, not to mention the need to find the best mortgage rate possible. If repayments are affordable there should be little to worry about, and if you're making provisions to handle a rate rise you can be set for the long-term. It's all about being realistic, and if you apply for a mortgage that's manageable you can get onto the ladder with confidence.
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