A further slowdown in home lending in May ahead of the referendum on the future of the UK in the European Union means house purchase lending activity has fallen to a 12 month low.
There were 65,113 house purchase approvals, down 1.7% from 66,250 the previous month, according to the latest Mortgage Monitor from residential chartered surveyor e.surv.
This marks a 12 month low in lending levels and is the lowest monthly figure for home purchase loans since the 64,626 granted in May 2015.
It follows monthly declines of 5.8% in April and 3% in March meaning volumes have fallen 10.5% over the last three months and the report says that the political uncertainty ahead of the EU Referendum may be causing caution amongst lenders and borrowers alike.
The recent falls represent a marked turnaround from the peak in lending seen at the start of the year. January and February both saw strong numbers of house purchase approvals granted at 73,060 and 72,512 per month respectively as buy to let landlords and second home buyers pushed through purchases ahead of the stamp duty changes in April.
Now, by comparison, the lending market is settling back into its usual rhythm. On an annual basis however, house purchase lending rose marginally in May by 0.8%.
The proportion of small deposit lending also dropped slightly in May comprising 18.4% of total home lending, down from 19.1% the previous month. Meanwhile, lending to large deposit buyers, those with a deposit of 60% or more, picked up significantly and now makes up 30.7% of all borrowing.
Richard Sexton, director of e.surv chartered surveyors, said that despite the uncertainty the mortgage market remains on an even keel and home buyers have more options than ever as lenders work to expand their range of mortgage options further.
He pointed out that new mortgages with longer repayment terms and innovative inter-generational mortgages are offering financial buoyancy aids for buyers but there can be little doubt that the referendum is causing some nervousness within financial circles and bringing new unknowns with it.
‘This political milestone could impact the UK’s economic outlook and slowing growth could pose problems of its own for both lenders and borrowers. Juggling these challenges will be key to maintaining the current health of the mortgage market and lenders should brace themselves for possible surprises,’ he explained.
‘Faced with this uncertainty, it’s perhaps no surprise that home lending levels are falling slightly. The result is a slight tail off in the middle of the year as home buyers pause for thought and lenders are gifted more time to investigate the potential of offering additional mortgage choices. A lull in buy to let lending following April’s stamp duty changes has also added to this calming in the market,’ he added.
The report also shows that small deposit loans(to buyers with a deposit worth 15% or less of their properties’ total value totalled 11,981 in absolute terms in May, down 5.3% from 12,654 granted the previous month. As a proportion of overall home purchase lending, small deposit borrowing accounted for 18.4% in May, down slightly from 19.1% in April.
Meanwhile, large deposit lending to borrowers with a deposit of 60% or more increased proportionally to comprise 30.7% of total borrowing, up annually from 28.2% in May 2015.
‘First time buyers may be feeling more positive as new mortgage options flood the market, but more still needs to be done to ensure small deposit lending stays a priority. Given the demands of saving for a deposit, high LTV lending continues to be crucial to helping aspiring buyers on to the ladder,’ said Sexton.