Lending to first-time buyers surged 74% in rush to beat stamp duty holiday deadline

Published 16th May 2012

The end of a stamp duty concession boosted lending to first-time buyers in March with a 74 per cent increase in loans on the previous month, the Council of Mortgage Lenders confirmed today.

Some 24,000 loans, worth a combined £3billion, were given out to first-time buyers as they rushed to beat March 24 deadline, after which they are no longer able to take advantage of the suspension of 1 per cent stamp duty on homes costing less than £250,000.

The CML said lending was 57 per cent up on last year with first-time buyers accounting for 42 per cent of total house purchase loans in the month, the highest proportion since 2001.

But the rise in loans was not restricted to home movers who benefited from the stamp duty concession. Other buyers took out 27,200 loans worth £4.3billion - an increase of 25 per cent on February.

CML director general Paul Smee said it remained to be seen whether other Government initiatives such as the NewBuy scheme will compensate for the end of the stamp duty concession.

He added: ‘We expected this significant increase in borrowing for March because of the stamp duty holiday.

‘However, if lending follows the same pattern as after previous stamp duty concessions, we will likely see a drop in activity in the next few months.’

The cost of a new home loan has begun to creep up as mortgage lenders seek to shore up battered profit margins.

Banks and building societies are also raising rates in a bid to avoid becoming the most competitive lender left in the market, and subsequently being swamped by demand from buyers.

On top of this, the dire situation on the continent is pushing UK house prices down and making risk-averse banks demand larger deposits from buyers.

Last week, Halifax, Britain’s biggest mortgage lender, increased its fixed-rate mortgages by up to 0.3 percentage points, adding £27 a month to a typical £150,000 loan.

The move came despite the Bank of England base rate being kept at its record low of 0.5 per cent for the 38th month in a row.

CML members are banks, building societies and other lenders who together undertake around 95 per cent of residential mortgage lending in the UK. There are 11.3million mortgages in the UK, with loans worth more than £1.2trillion.

Peter Rollings, chief executive of estate agent Marsh & Parsons, dismissed March's increase in lending as 'wholly artificial' as, he said, it was driven by the stampede of first-time buyers hoping to beat the stamp duty deadline rather than any sustained loosening of lending criteria.

He said that in fact the opposite was happening: 'After the peak in the mortgage market earlier in the year, we are facing the prospect of a trough as lenders tighten criteria and retreat from higher LTV lending - a factor that has taken its toll on buyer activity and house prices outside prime parts of London in the last month.

'Despite underlying buyer demand, concerns over the faltering economy have knocked lenders’ confidence, while the Eurozone crisis has pushed up the cost of raising funds to lend, and this is likely to be reflected in the coming months’ lending data.'

He added: 'If nothing else, the burst of mortgage market activity highlights the importance of the stamp duty holiday to first-time buyers, and the government’s folly in re-imposing such a financial burden for many new buyers.'

Source: ' ThisIsMoney '

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