Gross mortgage advances have hit their highest levels since the third quarter of 2007 and at £89bn ($123.33bn), in the second quarter of 2021, has doubled from the second quarter of 2020, a report from the Bank of England (BoE) out Tuesday shows.
Meanwhile the outstanding value of all residential mortgage loans stood at £1,584.1bn at the end of Q2 2021, up 4.6% from a year earlier.
First time buyer fear of missing out (FOMO)
“First time buyer FOMO helped fuel the rush for mortgages ahead of the stamp duty holiday deadline, pushing them higher than any time since the financial crisis. The fact that these buyers have less to gain from the stamp duty holiday itself demonstrates that the property boom isn’t over yet.
Overall, mortgages agreed for the coming months fell slightly, so we expect sales to back off from record highs. However, they remain significantly higher than a year earlier, so we don’t expect the market to fall silent,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown, in an email to Capital.com.
More first-time buyers
Of the 66.4% of advances for house price purchases by owner occupiers, lending to first-time buyers was up 6.5 percentage points (pp) compared to the second quarter of 2020 and 2.8pp higher than in the first quarter of 2021.
Coles believes the first-time buyer stats show strength in the market but highlighted that they were not driven by the stamp duty holiday, pointing out that they are already exempt from this form of tax on properties worth less than £300,000.
“Instead, they’ve been driven by other forces in the market, which aren’t going anywhere in a hurry. Rock bottom mortgage rates, and the fact some people were able to save more money during lockdown, made the move add up for more prospective buyers,” she said.
LTV and LTI
Government guarantees for higher loan to value (LTV) mortgages appeared to be encouraging more banks to lend to people who can’t put down a big deposit this year.
The Mortgage Lenders and Administrators Statistics by the BoE showed the share of mortgages advanced with a LTV exceeding 90% consisted of 2%, which was lower than a year earlier but still up from the previous quarter.
Meanwhile the proportion of lending to borrowers with high loan to income (LTI) increased by 1.9pp on the quarter to 51.4% and is 8.3pp higher than a year earlier.
Coles added: “FOMO played its part, as rising house prices convinced buyers to take the plunge before prices rose out of reach. And it helped that the prices of typical first homes, especially flats, have risen less than those for houses, as current owners have joined the race for space.”