Last updated: April 15, 2013 4:54 pm

First-time buyer loans at five-year high

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Lending to first-time buyers has picked up, with the number of would-be homeowners securing a mortgage rising to a five-year high in the first couple of months of this year.

The value of loans to first-time buyers was 17.6 per cent higher this February than for the same month in 2012, according to data released on Monday by the Council of Mortgage Lenders, a trade body for the industry. Coupled with strong figures for January, the data show that the market for loans to first-time buyers has made its strongest start to the year since 2008.

Julian Wadley of the CML said. “The rise in borrowing to first-time buyers is from a very low base – it’s very much baby steps, but it’s still encouraging.”

Interest rates for borrowers with small deposits, who are often first-time buyers, have fallen since the Bank of England and the Treasury launched Funding for Lending last summer. The average cost of a two-year fixed rate mortgage for borrowers with a 10 per cent deposit has fallen from 5.93 per cent in August to 4.57 per cent in February as competition between lenders has risen on the back of the initiative.

George Osborne, the chancellor, unveiled his Help to Buy scheme as part of last month’s Budget. One of the aims of the scheme is to spur lending to first-time buyers through government guarantees for mortgages where the borrower has a deposit worth as little as 5 per cent of the value of the property.

Paul Smee, CML director-general, said he hoped Help to Buy would “further stimulate first-time buyer activity” while also freeing up so-called “second steppers” to move house.

The February data were less rosy for the mortgage market as a whole. The data indicated conditions in the market overall failed to pick up in February, with lending to all home movers down 4 per cent compared with January and down 3 per cent compared with February 2012.

A pick-up in mortgage lending in March appears unlikely. The BoE reported earlier this month that the number of mortgages approved in February dipped to 51,653 from 54,187 the previous month. There is typically a lag of around a month between approval of a mortgage and disbursement.

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