Are loan restrictions easing?

by Mark Johnston

Research on mortgages for UK property shows that restrictions are ‘too strict’. Some experts believe that lenders have gone ‘too far’ in holding back and mortgage finance and therefore the housing market has become ‘stuck’ as a result of this.

The Financial Services Authority (FSA) has already been called upon to use their newly gained powers of oversight to help ease mortgage lending restrictions. Experts have found the move necessary in order to help stimulate the market.

According to new figures less than half of mortgages that came on to the market at the start of the month are available to borrowers with a 25% deposit. Moneyfacts figures show that only approximately 46% of mortgages currently on offer now ask for a deposit of 25%.

Although the best choice of mortgages are still to be found with in the 75% loan to value band (LTV), it is not since January 2009 that the market has seen so many deals requiring smaller deposits.

The percentage of sales to first time buyers has dramatically decreased and with this in mind the National Association of Estate Agents (NAEA) suggests that “we must ensure that their aspirations for property ownership can be met”.

President of the National Association of Estate Agents (NEAE), Michael Jones also added “what we need to see now is the Financial services association (FSA) using its powers to ease the restrictions that are preventing many first time buyers from entering the housing market”.

Lenders have however begun to increase the number of deals available to first time buyers, though this does not mean that more mortgages are actually being approved.

According to the BBC figures indicate that some lenders may be relaxing their strict mortgage rationing. Whilst this may be the case many lenders have warned that they still face severe restrictions on their ability to lend to home buyers.

There is still a huge shortage of funds available to banks. The Council of Mortgage Lenders (CML) suggests that money owed by the banks has a great effect on their mortgage approval rate. With over £200 billion in loans from the treasury and Bank of England, along with having to repay loans to commercial lenders it is little wonder that some lenders still remain reluctant to make more funds available.

The availability of mortgages does however continue to improve and encouragingly it is borrowers with a smaller deposit that are increasing in numbers. However research from the Lloyds Bank suggests that falling house prices continue to choke the housing market.

The size of a borrowers deposit it seems is no longer the only method lenders use to allocate mortgage funds and therefore not the only problem.

Some banks suggest that nearly a fifth of first time home owners do not have enough equity in their properties to move. In conjunction to this recent research found that so called ‘second steppers,’ those wanting to sell their first home and move up the property ladder, are unable to do so because house prices have fallen since they first bought them. With out movement from these ‘second steppers’ movement on the housing ladder comes to a standstill.



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