UK housing market shows signs of revival

The UK housing market is showing signs of its first significant revival since the credit crunch nearly six years ago. Mortgage lending picked up last year led by a big rise in first-time buyers, according to the Council of Mortgage Lenders (CML). The CML said the number of first-time buyers rose by 12% to 216,000, the highest number since 2007.

Separately, the Office for National Statistics reported that UK house prices rose by 3.3% last year. “House prices have increased across most of the UK in 2012, although prices in Northern Ireland have continued to fall,” the ONS said. The picture of a reviving property market was bolstered by the Royal Institution of Chartered Surveyors (Rics) whose latest survey found that property sales rose for the fourth month in a row in January.

The property market has been in a state of stagnation since 2007 because banks and building societies have been rationing their lending to only the most credit-worthy borrowers with large deposits to put down. Peter Bolton King of Rics suggested the “very worst” may now be over. “It is interesting to see that the amount of completed transactions are on the rise, as confidence returns to the marketplace,” said Mr Bolton King.

“While it is still very early days to talk about a comprehensive market recovery, activity levels are still encouraging and there is some optimism out there that things could continue to improve. “That said, in many parts of the UK – such as London and the South East – high house prices and the lofty deposits required by many lenders continue to prevent many first-time buyers from getting a foot on the ladder, which is preventing any significant movement at the lower end of the market,” he added.

Funding boost

Lending and sales have been boosted by the Funding for Lending Scheme.

This was launched by the Bank of England last August in an attempt to boost overall lending in the economy by £60bn, by offering cheap funds to banks and building societies on condition they then lent it to their customers.

This has been slowly improving the flow of funds to home buyers, including those who had previously been locked out because they had only a small deposit to put down.

The CML said some first-time buyers had been finding it easier to obtain mortgages last year, even with small deposits of 10% or even 5%. “While the average loan-to-value ratio stayed at 80%, where it has been for two years, this masks some encouraging movement in higher loan-to-value lending,” the CML explained. “For example, one in 40 first-time buyers took out a 95% mortgage compared with less than one in 100 a year earlier. And around one in five first-time buyers borrowed 90% or more,” it added.

For 2012 as a whole, the number of loans for all house buyers rose by 6% to 540,200, the highest annual figure since 2007. The CML’s director general Paul Smee said the market was clearly picking up. “First-time buyers, in particular, have benefited from the effects of better funding conditions and the Funding for Lending scheme, with the number of new people moving into home-ownership in 2012 reaching the highest level for five years.”

Encouraging signs

Rics said that the number of new homes being put up for sale, and the number of new enquiries from potential buyers to its estate agent members, both dipped in January. But it explained that this was probably because of the cold weather last month across most of the UK. Meanwhile, the latest figures chime closely with other recent statistics pointing to a revival in the property market.

Completed sales rose by 5% last year to 932,000, according to HM Revenue and Customs (HMRC), the highest level of sales since 2007, when the international banking crisis started. Also, recent figures from the Bank of England showed that the number of mortgages agreed by lenders for home buyers but not yet lent – a good indicator of forthcoming sales – rose in December for the fifth month in a row. With 55,785 mortgages approved in December – the most since January 2012 and, before that, the highest since December 2009 – it suggests that sales will keep on rising in the coming months.

Mark Harris, of mortgage broker SPF Private Clients, said the market was showing encouraging signs of improving. “The Funding for Lending scheme is making more money available at cheaper rates to lenders, which is being passed onto borrowers, resulting in some of the cheapest mortgage rates ever seen,” he said. “Two-year fixed rates are now available from 1.89%, while five-year fixes are pegged as low as 2.69% “This is being reflected in the growing number of first-time buyers, which is significant for the health of the housing market as they really are its lifeblood,” he added.