First Time Buyer Mortgage Approvals Fall to Lowest Levels

by Mark Johnston

Figures from the Council of Mortgage Lenders (CML) showed that in March 2012 there was a 57% increase in lending to first time buyers, when compared to the same month last year.

This boost in activity also helped to stimulate the rest of the market: a total of £4.3 billion of loans were granted to home movers in March, a 19% increase on February 2012 and a 10% increase year on year.

The number of mortgages advanced to first time buyers leapt by 74% to 24,000, 98% took out repayment loans, in March as these buyers raced to complete purchases before the deadline for the end of the stamp duty holiday.

The tighter lending condition are now evident in the mortgage market as the average deposit on a house purchase loan has once again risen to 40% for the first time since February 2011.

The April mortgage monitor from e.surv shows that approvals for first time buyers fell to their lowest level for 9 months as banks scaled back their lending to borrowers with smaller deposits.

First time buyers are definitely to be the hardest hit as banks reduce the availability of high loan to value (LTV) mortgages in response to increasing wholesale funding costs and tightening credit conditions.

This is the third successive month that these particular loans have fallen, which confirms the Bank of England’s view that banks and building societies are pulling back their lending.

Loans on typical first time buyer property worth up to £125,000 fell to just 11,307 in April 2012, which is 5% lower than the previous month and 1.2% down on the same time last year.

Peter Rollings, chief executive officer of estate agents Marsh & Parsons, said “buyer activity was being knocked by tightened lending criteria and increasing reluctance among lenders to offer mortgages at high loan to values”.

Richard Sexton, business development director of e.surv added “the market has now reached a tipping point, with banks and building societies unable to sustain their current levels of high loan to value lending as there is concern over the increasingly precarious state of borrowers finances”.

Mark Harris, chief executive of mortgage broker SPF Private Clients stated that a dip in transaction levels for April was “inevitable”.

The continuing problems in the euro zone are also casting a shadow over the UK housing market with lenders cautious regarding the volumes of lending they are prepared to commit to.

However, despite this some industry experts believe that there is still strong demand from buyers to get on to the property ladder and therefore it is crucial that this section of the market is supported rather than hindered.

Mortgage experts feel that brighter times should once again return once the turmoil in the wholesale markets eases and then lending to first time buyers should pick up again. Although just when this maybe is anyone’s guess at the moment.

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