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CML publishes new analysis of the stamp duty effect

Having previously estimated that gross mortgage lending reached £25.7 billion in March, the Council of Mortgage Lenders (CML) has now published new figures based on recent data obtained from the Bank of England and HMRC, which puts estimated gross lending at £26.2 billion, with the number of property transactions reaching 162,000.

When analysing the repercussions of the new stamp duty surcharge, which came into effect on the 1 April this year, targeting buyers of second homes and buy to let properties, the CML previously estimated that gross mortgage lending reached £25.7 billion in March.

That estimate put gross mortgage lending 43% higher than in February and 59% higher than in March 2015: an increase that was said to be driven by a surge to beat the new stamp duty deadline.

Data from the Bank of England and HMRC, coupled with updated CML data for March, has now enabled the organisation to comment further about the reported jump in activity.

In its latest report, authored by economist Mohammad Jamai, the CML states that on a non-seasonally adjusted basis, property transactions reached 162,000 in March.

“…we might have expected this figure to have been just over 100,000, which implies a large chunk of the increase in transactions was down to the stamp duty change.”

“A 60,000 increase in property transactions compared to the baseline was larger than expected, and we can now see that this was mainly as a result of a marked increase in cash transactions.”

Cash transactions are said to have increased by nearly as much as mortgage transactions, despite the fact that cash on average generally only accounts for 34% of the market.

The CML says its best estimate is that an extra 32,000 mortgage transactions took place in March, meaning cash transactions therefore accounted for as much as 28,000.

Breaking the activity down into four categories: first-time buyers, home-movers, buy to let purchase and cash, the CML highlights that the largest proportionate increase was in buy to let house purchases.

The next biggest increase was in cash transactions, which rose by 80%. Transactions by movers increased 60% and first-time buyer activity increase by 28% compared to February.

The key finding to take away from this therefore is that while the growth in buy to let was large, it actually made up only a third of the 60,000 increase in total property transactions.

The CML report also points to a corresponding jump in lending.

“Our initial estimate was of extra lending of between £4 and £5 billion, with the data from the Bank of England showing the actual figure was at the higher end of this figure.

“We’ve now revised our initial estimate of lending in March to £26.2 billion, which was 46% higher than February. This implies just over £5 billion extra lending than would otherwise have been the case, which roughly tallies with the 32,000 or so extra mortgaged transactions, given an average loan of about £150,000 per mortgaged transaction.”

While the CML states that is difficult to predict what will happen over the next few months, they are prepared to take an educated guess based on the data available to them.

“Our understanding is that approved applications that were in the pipeline were squeezed to complete before the stamp duty deadline, as opposed to seeing a big increase in new applications being approved in March. As a result, it is very likely that we will see lower activity levels in the next few months, which ties in with early data we have collected for April, showing a marked drop-off in lending.”

As such the CML estimates an average of 10,000 fewer mortgage transactions in April, May and June this year. It believes that this figure will offset the transactions that came through in March.

However, just as the market re-adjusts following the changes in stamp duty, further distortion may come about as a result of political uncertainty in Europe, the CML warns.

“… we’re likely to see further distortion caused by June’s EU referendum, which is already weighing on sentiment and affecting commercial property transactions and the wider economy.

“It is likely to feed into the residential property market, too. It may be that we have a housing market of two halves in 2016 - but we'll just have to wait and see.”