The government’s decision to raise the stamp duty threshold to £175,000 has seen the number of homebuyers not paying stamp duty double in September. The temporary increase enabled 51% of homebuyers to avoid stamp duty in September compared with 22% in the same month last year, the Council of Mortgage Lenders (CML) said today.*
However, despite this effort the number of mortgages taken out for house purchases fell to an all time low at just 35,000 new approvals for the month. New loans for homebuyers were down 15% on Augusts’ figure and have slumped since last September when lenders approved 80,000 such deals, the CML said.*
Since last Autumn, the number of house sales has plunged, thanks to the credit crunch. The CML said the value of mortgages approved for purchases had dropped to £5bn over the month, compared with £16.2bn in August last year. The CML's director general, Michael Coogan, said: "While house purchase activity has reached exceptionally low levels, it is encouraging to see transaction costs lowered for a larger proportion of borrowers. The government should consider what other measures can be brought forward to enable the market to transact more easily.
"Banks and building societies do want to support homeowners, but they have limited funds available and are, quite reasonably, taking a prudent approach to risk. If the pricing and volume of interbank lending continues to improve, this should help the flow of mortgage lending."
Remortgage approvals also fell by 15% in September, with 62,000 borrowers switching loans compared with 74,000 in August, the CML said. The reasons for this being that a lot of lenders have tried to reduce the amount of risk on their books, by making remortgage rates unattractive and thus discouraging those with less than 25% equity in their home to remortgage. The CML also stated that the value of remortgaging in September had fallen to £8.5bn compared with £11bn a year earlier.
Official figures from the communities department also published today showed house prices fell by 5.1% in the 12 months to the end of September, and were down 3% over the summer. Northern Ireland bore the brunt of the downturn, recording a 15.8% fall in prices, while in Scotland the market dropped by just 0.8%. In England and Wales prices dropped by just over 5%.
The average price paid by first time buyers in the UK had dropped by 7.8% over the year to £150,311, while movers paid an average of £243,161, 4% lower than in September last year. This decline has pushed down the value of the average mortgage taken out by buyers entering the market, the CML figures show. In September, the average first-time buyer loan dropped to £104,500, down from £108,000 in August and well below the peak of £119,250 it reached in July 2007. Although homes are now more affordable for first-time buyers, their numbers have also plummeted - down from 28,200 in September last year to 13,400 this year.
The figures thus create a picture of a housing market stuck in decline, as a direct result of the lenders hesitant attitudes to lending. Howard Archer, chief UK economist at HIS Global Insight, said: "Overall, the latest plethora of data and survey evidence on the housing market do little to alleviate belief that prices are set to fall markedly further over the coming months.
"Indeed, even though mortgage lenders are largely passing on last week's 1.5% interest rate cut by the Bank of England, the fundamentals for the housing market remain largely unfavourable."
*Source-The Guardian Tuesday 11th November 2008.