The number of mortgages increased in June by 4% on the previous month, suggesting that tighter borrowing criteria imposed by the financial regulator this year had only cooled the market for a few months.
The Council of Mortgage Lenders said a survey of the biggest lenders showed that 60,500 house purchase loans, worth £10bn, were taken out during the month, an increase of 5% by number and 6% by value on May's figures. Compared with June 2013, the figures were 15% and 23% higher respectively.
More than half of those loans were taken out by home movers, although the number of first-time buyers showed a bigger month-on-month increase, making up slightly less than half of the total at 28,600. Chris Williamson, chief economist at Markit, said a continuing stream of positive data on the housing market would add to the pressure on the Bank to increase rates. "A few more months of data showing the property market is booming and double-digit price growth will add to the pressure on the Bank," he said.
Affordability tests, which force lenders to check applicants' outgoings as well as their income and to stress-test their borrowing to ensure they can afford repayments if interest rates increase, appeared to damp the market after they were imposed in April.
The central bank is under pressure to increase rates in response to the booming economy and the sharp increase in the number of people in work. Rising house prices have also triggered calls for an increase from the current historic low base rate of 0.5% to deter buyers and take the heat out of the market.
Mark Carney, the Bank's governor, is expected to say tomorrow following publication of the Bank's quarterly inflation report that a house price crash remains a risk to the recovery and policymakers must be vigilant to prevent prices getting out of control. Carney has previously argued that keeping house prices in check is possible using regulatory tools such as stricter affordability tests.
While some surveys have indicated that more sellers are putting their homes on the market to take advantage of recent price increases, especially in the south east, which might keep the market from overheating, Carney could be faced with the prospect of intervening again with even tighter affordability tests or increasing rates.
The CML figures showed the average first-time buyer borrowed 3.47 times their gross income to fund their purchase, compared to 3.46 in May, while the typical loan size increased by more than £2,000 to £123,865.
The typical gross income of a first-time buyer household also rose, to £37,000 from £36,500 in May.
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."
Investors' appetite for property continued to grow, with the CML reporting a 23% year-on-year increase in the number of buy-to-let loans. A total of 15,600 landlord mortgages were advanced, worth £2.2bn.
While the number of landlords remortgaging was up by 23% on June 2013, at 7,250, the number of owner-occupiers choosing to switch lenders was down by 8.2%, despite growing speculation that an interest rate rise could happen before the 2015 election. A total of 23,600 homeowners remortgaged during June.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the figures suggested the new rules brought in with the MMR had not been detrimental to buyers.
"However, one area of the market which is subdued is remortgaging – all the more surprising when you consider the excellent rates available and the threat of an interest rate rise," he said.
"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.
"Buy-to-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-to-let rates and easing criteria in an effort to ensure lending volumes are not too dented post-MMR because buy-to-let doesn't come under its remit. Investors are benefitting from cheap mortgage rates, less strict criteria and plenty of demand from tenants looking for decent property to rent."
The CML figures are for mortgages advanced during the month so reflect sales some weeks or even months before. The latest report from the Royal Institution of Chartered Surveyors, due on Thursday, is expected to suggest house prices could fall in the coming months after the number of sellers increased to exceed the number of would-be buyer, the Times reported on Monday.
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