Increase in Home Loans taken out in June – Mortgage Market Review measures criticised

The number of home loans taken out by buyers seeking to combat high house prices swelled in June, according to official figures from lenders which indicate that restrictive measures imposed on banks in Aprilís Mortgage Market Review (MMR) are failing to have their desired effect.
Compiled by the Council of Mortgage Lenders (CML), the figures revealed that over 60, 000 home loan valuing at £10bn were taken out during June, denoting a 6% rise in value on the previous month, and a 23% rise in value on June 2013.
Lending activity in June was particularly busy in the case of first time buyers, as a reported 28, 600 loans were provided to those seeking to step onto the property ladder. This marked a rise of 7.1% on May 2014, an 18.7% escalation on June 2013 and ultimately, represented a 7 year peak in the number of home loans afforded to first time buyers.
On average, the first-time buyer borrowed on average 3.47% their total income to aid their acquisition, with the total amount borrowed in Q2 of this year increasing to £122, 000 from £118, 750 in Q1.
ëGentle Dampenerí
The MMR introduced changes to curtail the number of approvals from lenders, preventing risky loans being afforded to those without the means required to meet monthly repayments. 
Mortgage lenders were prohibited from offering more than 15% of their total loans distributed at loan-income ratios of 4.5 or more. 
In addition, lenders were strongly advised to ëstress testí a borrowerís capacity to repay their loans, that is to say checking how they would cope with monthly repayments at higher rates of interest. For example, if a prospective house-buyer took out a loan at 4%, the lender would check how said house-buyer would cope with a rate of 7%. This was hoped to have given lenders an indication of the borrowersí long term viability in the face of turbulent market conditions.
However, the CMLís data casts shadows over the efficacy of the MMRís introduced regulations, with the record high increase in the number of home loans for first time buyers, since the release of the MMR, a particularly worrying statistic amongst many.
The reality that 1 in 5 home loans taken out in June were high loan-value candidates – a drastic increase on the 1 in 9 home loans taken out a year prior ñ is expressly troubling.
Paul Smee, director general of the CML, said: “For the second month running since new FCA rules took effect, lending characteristics remain similar to the market beforehand.
“We now feel confident that, as we would hope, the mortgage market review [MMR] effect is more gentle dampener than hard brake.”
The truth is, the MMRís regulations have failed to have a significant impact on the fiery housing market, with clamour coming from estate agents lambasting the time-consuming nature of transactions, slurring it as the only meaningful effect of the MMR.
Mark Harris, CE0 of mortgage broker SF Private Clients, suggested that MMR regulations had not hampered buyer activity.
“However, one area of the market which is subdued is remortgaging ñ all the more surprising when you consider the excellent rates available and the threat of an interest rate rise. One can only assume that homeowners are either struggling to remortgage because of MMR or think it will be difficult, so aren’t bothering to apply in the first place,” he said.
“Buy-let continues to grow as investors seek better returns than they can earn on cash and more certainty than the stock market. Lenders have been cutting buy-let rates and easing criteria in an effort to ensure lending volumes are not too dented post-MMR because buy-let doesn’t come under its remit.
“Investors are benefiting from cheap mortgage rates, less strict criteria and plenty of demand from tenants looking for decent property to rent.”
Further regulatory measures were implemented by the Bank of England on 26th June which sought to tackle the issue of high loan-value mortgages. Although the effect of these will only be seen in next monthís housing data, they appear to be sorely needed as the desire to own a home appears to outweigh the need for prudence in a time of escalating house prices. 


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