It showed a marked increase in activity from what was a low point in the first quarter of the year, driven by greater lending for house purchase. But remortgaging remains subdued.
There were 11,400 loans for house purchase in the second quarter in Scotland, a 50% rise from the first three months of the year but 39% fewer than we saw in the same period last year. The increase was evenly spread between first-time buyers and movers.
However, remortgaging declined. There were 9,000 loans for remortgaging in Scotland in the second quarter, worth £900 million, compared with 11,000, worth £1.6 billion, in the first three months of the year. Remortgaging demand remains subdued because many borrowers coming to the end of an existing mortgage deal are choosing to revert to their existing lender’s standard variable rate, which often provides an attractive option for them.
The data suggests that the tightening of lending criteria in Scotland is finally slowing, as it is elsewhere in the UK. The size of deposit paid by a first-time buyer, at 25%, was unchanged from the preceding quarter but up from 13% a year ago. However, movers typically borrowed 70% of the property’s value, down from 71% in the preceding quarter and 73% a year earlier.
Income multiples rose in the second quarter, with first-time buyers typically borrowing 2.85 times their income, up from 2.74 times income in the first three months of the year. Movers typically borrowed 2.55 times their income, compared with 2.51 times income in the preceding quarter.
Lower mortgage rates and house prices contributed to lower debt servicing costs in the second quarter. First-time buyers typically spent 14.1% of their income on mortgage interest payments, the lowest income share since the first quarter of 2006. For movers, interest payments consumed an average of 11.1% of income, the lowest level for five years.
Mortgages continue to be a little more affordable in Scotland than in the UK as a whole, largely because house prices are lower, leading to lower average income multiples and debt servicing costs.
Signs of increased stability in lending activity are likely to be among the early signs of a more general recovery in the housing market. But it will be a slow path to full recovery, with progress hampered by restricted access to mortgage funding, a reduced number of active lenders, rising unemployment and weak demand from borrowers.
