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Housing market activity sees ‘substantial’ increase in May

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The housing market slump following the end of the first-time buyer stamp duty holiday appears to have been short lived as mortgage lending bounced back in May, according to the Council of Mortgage Lenders.

House purchase lending increased by 36% in May, compared to April – and 29% compared to the same time last month. The number of loans also increased, by 33% from April and 24% from a year ago. Remortgage lending also increased in May with £3.5bn advanced for remortgage.

Paul Smee, director general of CML, said: “It is positive news for the market that the slump following the end of the stamp duty concession seems to have been short-lived. Lending is similar to late 2011 levels and showing a healthy improvement on the same time last year.

According to CML, first-time buyer activity bounced back following the volatility of March and April. 18,100 loans, worth £2.3bn, were advanced to first-time buyers in May, up from 12,700, worth £1.5bn, in April.

But CML highlight that this may be a 43% rise (53% by value) from April but, following the distorting effects of the end of the stamp duty concession, this returns first-time buyer lending back to a similar level seen in the second half of 2011.

The characteristics of first-time buyer loans also began to return to normal after March and April’s stamp duty effect.

First-time buyers on average took out a loan of £104,000 in May, up from £97,750 in April.

They also borrowed 3.21 times their income, up from 3.12 in April and they paid 19.6% of their income in capital and interest payments, up from 19.1%. All of these May figures are more in line with the typical experience over the last year.

The proportion of first-time buyers buying properties valued at between £125,000 and £250,000 rose from 37% in April to 44% in May, but was not quite back at the norm of around 50% seen since 2007.

Lending to home movers also increased with 30,200 loans taken out, worth £4.9 billion.

This was up 29% by number and value compared to April and up 25% (29% by value) from May 2011.

The report also showed that repayment loans continued to dominate within all groups. 98% of loans taken out by first-time buyers were on a capital repayment basis, unchanged since March, 87% of home movers took this option, up from 85% in April and 82% of those remortgaging also did, unchanged since April.

Smee added: “However, the problems in the Eurozone have not gone away. Economic uncertainty could affect both the supply of mortgage lending and consumer confidence and we still anticipate a challenging lending environment for the rest of the year.”

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