Increased lending during 2012 was not enough to improve housing affordability, as an annual review of the National Mortgage Index from the UK’s leading independent mortgage broker, Mortgage Advice Bureau (MAB), shows income growth among homebuyers was eclipsed by rising deposits and mortgages.

Using yearly data from more than 500 brokers and 800 estate agents, the National Mortgage Index also reports that the typical loan to value (LTV) for purchase and remortgage business actually fell year-on-year in 2012, with purchase LTVs at their lowest in the second half of the year.

Affordability hit by rising prices:

Purchase deposits rose further in 2012 than in the previous two years combined. Last year’s increase of 15% dwarfed the 3% growth which occurred between 2009 and 2011. The average purchaser in 2012 put up almost £10,000 more for their deposit than in 2009, and also borrowed more than £32,000 extra as part of their mortgage.

Annual affordability reached a three year low in 2012 after an 8% increase in purchase applicants typical income was bettered by a 12% annual rise in the average house purchase price. Despite encouraging activity in the marketplace, affordability fell one percentage point to an average of 17% for the year, having stood at 19% for both 2009 and 2010.

The availability of incentivised funding in the second half of 2012 had little effect on average LTVs for the year, which were down on 2011 (70% for purchases vs. 70.7% -“ 2011; 56% for remortgages vs. 58% -“ 2011). Despite the Funding for Lending Scheme launching in August 2012, average purchase LTVs fell marginally for the second half of the year, from 70.1% (Jan-Jun) to 69.9% (Jul-Dec).

Fixed rates offset income drop among remortgage applicants:

With fixed rates tumbling, they were chosen for over 81% of all purchase applications in 2012 and 86% in the second half of the year, having accounted for less than 60% of purchase business in 2010. The benefits have also been shared with consumers remortgaging their homes, with the percentage of fixed-rate remortgage business rising from 54% in 2010 to 78% for 2012.

The availability of improved rates will be welcome news to many existing homeowners, as the average income for remortgage applicants has fallen by nearly £2,000 between 2009 and 2012. Despite this, people are typically borrowing over £12,500 more to remortgage their properties than they were three years ago.

Falling numbers of intermediary products:

Average product availability also fell in 2012, having peaked at 8,781 in 2011. The 2011 figure was almost 2.5 times (240%) the average during 2009 (3,652), driven by a 265% jump in the number of intermediary products on offer (2,586 -“2009 vs. 6,856 -“ 2011).
The intermediary sector saw the biggest annual fall in product availability during 2012, dropping by 15% to under 6,000. A 20% increase in the number of direct products was not enough to combat this decline, which led to an 8% annual fall in overall product availability to 8,120.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments:

Looking at 2012 as a whole gives us a clear indication of the challenges ahead for the mortgage market. The fact that fixed borrowing rates are so favourable is a real godsend for new and existing homeowners, because they are having to borrow significantly more upfront to secure a mortgage or remortgage their current properties.

Even though the typical purchase income rose annually, finding an additional £10,000 to put down for a deposit is a considerable ask. Given that average LTVs for the year actually fell from 2011, the rise in average income may mean people on lower salaries are making fewer house purchases, because asking prices are simply beyond their reach.

Thankfully, the conditions are in place to make significant headway on this front in 2013. Industry figures show that lending to first time buyers is growing, and as more incentivised funding is drawn down from the Bank of England, we can expect the competition between lenders to fuel increasingly attractive product offerings at both ends of the market.

It is shaping up to be good time to explore the potential for purchasing or refinancing a property, and brokers -™ role in helping consumers review their options will be more important than ever.-

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