Scottish Housing Market Review: Q3 2021

Lending To Homebuyers: Mortgage Approvals & LTVs

New Mortgage Advances

Chart 4.1 plots the monthly number of new mortgages advanced to first-time buyers and home movers in Scotland. There were 9,270 new mortgages advanced to first-time buyers in Scotland in Q2 2021, an annual increase of 157.5% (+5,670). Meanwhile, there were 8,120 new mortgages advanced to home movers in Scotland in Q2 2021, an annual increase of 156.2% (+4,950). Whilst the annual increases for first-time buyers and home movers are large, this can be explained by the restrictions on home moves in Q2 2020. Relative to the 4 year average for Q2 (2016 – 2019), new mortgages advanced to first-time buyers are up 6.4%, whilst for home movers they have fallen 5.2%. For the one year period to Q2 2021 relative to the year prior, the increase in the number of new mortgages advanced was higher for first-time-buyers (35.0%) than for home movers (30.0%) (Source: UK Finance).

Source: UK Finance

Mortgage Approvals

Chart 4.2 plots the monthly number of mortgage approvals across the UK for house purchase (Source: BoE). Mortgage approvals for house purchase are the firm offers of lenders to advance credit fully secured on dwellings by a first charge mortgage. This data is a leading indicator of mortgage sales as it reflects activity early in the buying process.

Mortgage approvals for house purchase across the UK have rebounded strongly since May 2020, with mortgage approvals increasing from 9,922 to 104,053 in November 2020 (see Chart 4.2). Mortgage approvals for house purchase have reduced since November but remain higher than the same month in years prior, with mortgage approvals rising by an annual 5% in July 2021.

Source: Bank of England

Loan-to-Value (LTV) Ratios

In Q2 2021, the mean Loan-to-Value (LTV) ratio on new mortgages advanced to first-time buyers in Scotland stood at 79.1%, down 1.5 percentage points annually. This likely reflects the reduction in the availability of high LTV ratio mortgages since the start of the coronavirus pandemic. Meanwhile, the mean LTV ratio for home movers in Scotland stood at 70.7% in Q2 2021, also down 1.5 percentage points over the one year period. This is shown in Chart 4.3 (Source: UK Finance).

Source: UK Finance

Chart 4.4 shows that there was a reduction in new lending at high LTV mortgage ratios across the UK since March 2020. The share of gross mortgage advances across the UK in Q2 2021 with an LTV ratio greater than 90% was 2.0%, 2.8 percentage points below the share in Q2 2020. There has also been a reduction in lending which is both high LTV and high LTI (loan-to-income). The share of gross advances classified as high LTV and LTI was 1.7% in Q2 2021, down 2.1 percentage points on Q2 2020.

Source: FCA

There has been a substantial increase in the number of high LTV products offered by mortgage lenders, with the number of 95% LTV mortgages products increasing from 8 in December 2020 to 283 in September 2021. While this recovery could in part reflect the UK Government's Mortgage Guarantee scheme, a number of high LTV products have been introduced outside this scheme (Source: Moneyfacts Mortgage Treasury Report).