The housing market could be about to improve, if a dramatic new move by Chancellor George Osborne pays off. Last night, he and Bank of England governor Mervyn King unveiled a plan to unleash vast sums of money via high street banks. The Bank of England will pump around £140bn into the banks, on the condition that they pass it on directly in the form of cheaper mortgages and business loans.
One senior Lib Dem described it as hitting the panic button. The schemes are due to start within a few weeks.
The move comes after latest figures show that lending to first-time buyers fell off a cliff in April after the Stamp Duty holiday came to an end.
The Government was accused of having meddled with, and distorted the market, but some pundits thought the fall was little or nothing to do with Stamp Duty, which would only have saved first-time buyers 1%.
According to the Council of Mortgage Lenders, there was a 70% drop in lending for first-time buyers of properties priced between £125,000 and £250,000 – the price bracket where Stamp Duty was reintroduced.
But even lending on properties valued at £125,000 or below, and which remained exempt from Stamp Duty, fell 11%, while first-time buyer lending for properties over £250,000 – which had never had an exemption – fell 5%.
Altogether, lending to first-time buyers in April was down 48% on March, with just 12,600 loans. This was also a 12% decrease on April last year.
Lending to home movers also decreased, by 15% on March’s figures, although up 3% on April the year before. There were 23,400 loans to home movers this April.
Reaction to the huge drop in first-time buyer lending was generally one of ‘I told you so’ acceptance.
CML director general Paul Smee said: “April’s figures show the expected effect of the end of the Stamp Duty concession on UK mortgage lending.
“Given the economic uncertainty, any significant pick-up in lending in the coming months seems unlikely.”
Mark Hayward, spokesman for the National Association of Estate Agents, said: “These figures confirm that there is little sign of recovery in the property market, and data from our members shows no green shoots of growth in the levels of property supply and demand.”
David Whittaker, managing director of Mortgages For Business, said: “It seems we can’t go more than a few months without some government initiative, national event or unseasonal weather phenomenon impacting the mortgage market and distorting the lending figures.”
Nick Hopkinson, director of property company PPR Estates, said: “April’s collapse in mortgage borrowing was entirely predictable and is a symptom of the overall return to recession in the wider economy.
“Worryingly, even remortgage numbers are falling again from last year’s lows. This is compelling evidence for anyone who has doubts about the willingness of banks to lend competitively at the moment. Mortgage brokers and financial intermediaries must be really suffering as their main income streams show no sign of recovering from the credit crunch collapse in 2008.”
Brian Murphy, head of lending at Mortgage Advice Bureau, said: “A slowdown in mortgage applications was to be expected after the reintroduction of Stamp duty for purchases between £125,000 and £250,000, and lenders’ continued withdrawal of upfront discounted deals.
“Lenders have been tightening criteria and we saw an increase in both the size of average deposits being put down and in average incomes on applications, which is consistent with a drop in first-time buyers. However, the market is still much stronger than it was this time last year and since then activity has begun to increase again.”
David Brown, commercial director of estate agency chain LSL Property Services, was cautious: “The current economic environment presents an enormous challenge to lenders, with the eurozone crisis continuing to be the major obstacle to an increase in lending.
“As things stand, it’s difficult to foresee the mortgage market significantly expanding in the coming months, and any growth is likely to be driven by buy-to-let lending as the private rented sector grows to accommodate the growing number of frustrated buyers.”
London estate agent David Pollock, MD of Greene & Co, did not think April’s figures had anything to do with the end of the Stamp Duty holiday.
He said: “That’s nonsense. It’s all about it getting harder and harder to borrow money. Getting a mortgage is becoming more and more difficult: the fluidity of finance and the concern about the economy as a whole are the factors affecting first-time buyers – it’s not about the Stamp Duty holiday. Saving 1% isn’t going to make a blind bit of difference.”