Mortgage lending to first-time buyers increased to its strongest level since 2007 in May despite the introduction of stricter rules around the way home loans are handed out, figures from banks and building societies show.
First-time buyers took out 26,800 mortgages worth a collective £3.9 billion in May, marking the biggest number of loans advanced to people taking their first step on the property ladder since November 2007, according to data from the Council of Mortgage Lenders (CML).
The typical first-time buyer now requires a 16 per cent deposit, which is the lowest average deposit share needed since 2008. The average loan size of a first-time buyer loan also lifted to a new peak of £123,200 in May, edging up from a figure of £121,500 in April.
By value, lending to first-time buyers is up by 30 per cent compared with May 2013 as well as an 11 per cent increase compared with April this year.
At the end of April, a mortgage lending clampdown was introduced across the industry with the aim of preventing any return to irresponsible lending.
The rules, introduced under the Mortgage Market Review (MMR), force lenders to ask home buyers and people looking to remortgage more detailed questions about their spending habits than before.
Lenders also have to apply “stress tests” to make sure a loan would still be affordable as and when interest rates rise, often applying a theoretical mortgage rate of seven per cent.
The CML’s figures show that first-time buyers taking out mortgages in May this year were stretching their borrowing harder than those taking out a loan a year earlier.
People climbing on to the first rung of the property ladder are typically borrowing 3.43 times their gross income, compared with an average loan-to-income multiple of 3.29 a year ago.
The CML said that the current low interest rate environment means that at the moment, borrowers’ payment burdens remain “relatively low”, with 19.5 per cent of their gross income typically going towards their mortgage repayments.
On top of the new MMR rules, at the end of last month the Bank of England announced further new curbs for the mortgage market, including that loans of 4.5 times a borrower’s income or higher should account for no more than 15 per cent of new mortgages issued by lenders.
The Bank’s new curbs will also apply to the Government’s flagship Help to Buy scheme, which helps low-deposit borrowers. Some 80 per cent of users of the UK-wide Help to Buy mortgage guarantee scheme are first-time buyers.
Paul Smee, director general of the CML, said that so far, the impact of the MMR on lending trends appears to be “subtle, rather than dramatic”.
He said: “First-time buyers and home movers continue to be key drivers in market growth and their activity does not seem to have been noticeably disrupted.