First time buyer loans declined as a percentage of mortgages arranged to reach the lowest ever level of just 10.5% (last quarter: 10.8%). The proportion of first time buyer mortgages has fallen every quarter for the past two years, as strongly rising average house prices nationally have steadily pushed properties beyond the reach of many first time buyers.
John Heron, managing director of Paragon Mortgages, comments: “Our financial adviser survey reflects the inexorable decline of first time buyer activity over the past couple of years, as they have quite simply been priced out of the market. House prices rises of 43% since Q3 2001 have been matched by a similar – 45% - fall in the proportion of loans being arranged on behalf of first time buyers. Denied the possibility of stepping onto the property ladder, many prospective home buyers have rented homes instead, which in turn has kept the buy-to-let sector buoyant over that time.”
Overall, advisers reported 7% growth in the average number of mortgages introduced by each of their offices – a rise from 28.1 loans last quarter to 30.1 this quarter. This figure almost matches the peak of 30.2 loans recorded in December 2002.
Advisers expect this rate of growth to be sustained, forecasting a further 7% increase in their business in the fourth quarter. This reveals them to be more optimistic than they were 3 months ago, when they expected growth of 5.2% - indeed, this quarter’s business volume exceeded their expectations by over a half.
These buoyant business levels continue to be underpinned by high levels of remortgage activity, which once again accounted for more than half of loans arranged – although this quarter’s figure of 53% was slightly lower than last quarter’s 55%.
Buy-to-let mortgages showed a significant increase this quarter, rising from below 9% to almost 11%, bringing the amount of buy-to-let business undertaken by introducers to a comparable level to that seen in March 2002.
This quarter also sees a shift in borrowers’ reasons for remortgaging, with a reduction in the number doing so in order to reduce or control outgoings (down by 4 percentage points from 39% to 35%).
This fall was matched by rises in the number of people remortgaging to fund a second property (up from 17% to 20%) and to fund home improvements (up from 25% to 26%). Between them, these two reasons represented almost a half of all remortgages.
John Heron continues: “While the bulk of remortgages are still motivated mainly by cost considerations, there is a growing number of people who remortgage in order to release equity to buy a second property – as a holiday or rental home – or in order to improve their existing home.”
Last quarter’s preference on the part of borrowers for fixed rate and base rate tracker mortgages has been sustained this quarter. Fixed rate accounted for 37% (last quarter: 38%) while trackers increased significantly in popularity from 28% to 31%. “Borrowers increasingly prefer the transparency of mortgages that are pegged to an officially published rate or otherwise the security of a fixed rate so they know what their mortgage payments will be in the future,” says John Heron.
On the other hand, discount mortgages are increasingly less popular, this interest type declining for the fourth quarter in a row and now standing at 22% (last quarter: 25%), while capped and cashback deals account for only a very small proportion of mortgages arranged.
The rise in mortgage volumes registered in 2003, combined with sustained confidence levels for the future, means the Paragon Financial Adviser Confidence Index has risen from 120.2 to 128.4 this quarter.
