UK house prices: Are low deposit mortgages propping up the housing market?
The number of people buying houses with low-value deposits has risen by 7.3 per cent in the last year, according to data analysis by chartered surveyors e.surv.
The figures
Lending to borrowers who have only small deposits (15 per cent or less of the property’s value) accounted for 16.3 per cent of house purchases in April, up 1.4 percentage points from the same month last year (14.9 per cent).
Those increases come at a time when the number of overall house purchase approvals have actually fallen – although this doesn't account for the whole of the proportional increase – the number of approvals was a shade over 62,000 in April, a 1.9 per cent drop on April 2014. This is the lowest the (seasonally adjusted) figure has been for a long time, partly due to Mortgage Market Review (MMR) restrictions, with the last six months’ figures implying that growth could return soon.
MMR rules were brought in to limit the proportion of highly leveraged mortgages banks can grant in a given area.
Why it’s interesting
The drop in the number of mortgage approvals means that high loan-to-value (LTV) mortgages are of increasing importance to the market, and that the bottom end of the property spectrum cannot be ignored. This is clear from the election campaign and recent politics in general, where parties have tried to woo first-time buyers.
The proportion of high LTV mortgages varies throughout the UK, with London having the smallest percentage at seven per cent. Yorkshire is the region with the highest proportion of high LTV mortgages, at 25 per cent.
These figures follow the general house price trends, with London properties being the most expensive, meaning those able to buy a property have enough money to foot proportionately large deposits too.
There may be some fears that small deposits may precipitate another financial crisis, but the proportion of high LTV mortgages is still only a quarter of what it was in 2007.
What e.surv said
Richard Sexton, director of e.surv chartered surveyors, comments:
Borrowers with smaller deposits are making a welcome comeback, thanks to increased accessibility in lending, improving wages and highly attractive mortgage rates. This revival of the bottom of the market is becoming ever more crucial – and this showed in the recent election struggle, with all the main parties placing helping first-time buyers as one of the crucial components of their campaigns.
However, before concerns are raised regarding the increase in higher LTV lending, it’s worth putting these numbers in context. The number of higher LTV house purchase approvals is still only a quarter of what it was in 2007. This is a healthy upturn in higher LTV lending, not a symptom of any malady in the mortgage market.
In short
The figures show people are still willing to borrow proportionately large sums for homes, and that demand is there, even if it was tempered by MMR restrictions last year. Demand means there is a great need for the government’s plans to build 200,000 houses to be realised.