Will the mini mortgage bubble burst?

world record bubbleGerald Penny/AP/Press Association Images

The last couple of months has brought some much-needed good news for the mortgage market. Just two weeks ago the Council of Mortgage Lenders was reporting that lending was 10% higher in January than the previous year, at £10.5 billion - it was the sixth month in a row of higher year-on-year lending. We have also seen a rash of new 90% and 95% mortgages, which all gave the market a general air of positivity.

However, a new report claims it's all a mirage, which is starting to shatter.

Temporary bounce

The study, by e.surv, chartered surveyors, says that the brief 'bounce' in higher lending figures was caused by a temporary stamp duty holiday. Houses worth less than £250,000 have been exempt from stamp duty since March 2010. However, that respite is coming to an end on 24 March, when those properties will again be subject to stamp duty.

Fall begins

The surveyors said that the number of mortgages taken out in February fell sharply to 46,499 - a 21% decrease from the number in January - as the rush of first time buyers trying to take advantage of the tax break dried up. Loans for purchases under £250,000, the threshold for the stamp duty exemption (and also typical first-timer property), fell by almost ten thousand from 43,459 in January to 33,944 in February.

Richard Sexton, director of e.surv, said, "The stampede of first time buyers rushing to beat the stamp duty deadline bloated the January figures out of all recognition. They created an artificial spike in approvals, which shouldn't be misconstrued as a sign the market is resuscitating in the long-term. At first glance the drop in approvals during February looks alarming, but it is a return to normality after an abnormally frantic winter."

First time buyers disappear

The company added that first-time buyer numbers fell to their lowest level since July last year, which it believes marks the beginning of a real downturn in that section of the market. Loans to borrowers with small deposits of under 15% fell to their lowest since July 2011. There were only 5,533 such loans in February, down from 7,870 in January, which may partly be due to the decline in first time buyers, but also shows an unwillingness on the part of lenders.

Sexton says: "Weak funding conditions mean lenders won't be in a position to increase net lending – the truest indicator of a healthy market – beyond around £6bn this year, which is still painfully low compared the mid-2000s. Plenty of would-be buyers will be left out in the cold."

The plus side

It looks like the housing market is set for a miserable time. However, this isn't the only view. CML chief economist Bob Pannell believed there are some positive signs too. He says: "Should inflationary pressures continue to fall back, the squeeze on household finances should ease progressively and help support stronger economic recovery going into the second half of the year. This can only be good news for the housing market further down the track."

So what do you think? Was the 2012 bounce all about the stamp duty holiday bubble? Is it set to pop? Or is there some real strength lurking under all the worries? Let us know in the comments.

Loans for house purchases (seasonally adjusted)

Sept 51,086
Oct 52,603
Nov 52,628
Dec 52,939
Jan 58,728
Feb (forecast) 46,499
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