Home Loans Slip 8% in June as Banks Reduce Lending to First Time Homebuyers

Ruth Matthew, 12th July 2012

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Banks are cutting back on lending to first time buyers according to the latest Mortgage Monitor from e.surv chartered surveyors.

There were just 10,325 loans for house purchases under £125,000 (typical first-time buyer property), a fall of 12% from May.

Those with smaller deposits were hit particularly hard with just 4,750 loans granted to borrowers with a deposit under 15%, the lowest since October 2011. This equates to just one in ten of the loans granted - the lowest ratio for 11 months.

Despite 2011 being a weak year for lending, purchase approvals on typical first-timer homes were still marginally lower than in June last year.

The reduction in loans to first time buyers is in line with an overall sharp drop of 8% in house purchase loans to 46,932. This is the lowest figure since May 2011.

Overall loans are 4% down from June last year, marking the first year on year fall for 13 months, with the average deposit on a house purchase loan rising above 40% for the first time since February 2011.

The reversal of tentative growth in loans since last autumn has been reversed due to tightened lending amid increased costs and Eurozone fears.

Richard Sexton, business development director of e.surv, explained the changes: “It costs banks up to 40% more to fund a mortgage than it did in February, which is squeezing their balance sheets like a vice.

“They’ve responded by upping rates and reducing the number of mortgages they grant.

“First time buyers have been hardest hit because they have smaller deposits, so are seen by banks as riskier borrowers.

Whilst any significant improvement in lending seems to be a long way off it is hoped that the government’s Funding For Lending scheme will provide a boost to the market.

Mr Sexton added: “Banks need access to cheaper funds if they are to increase lending to lower income buyers.

“Funding for Lending will help, but it may not be on a large enough scale to make any serious inroads into helping would-be buyers escape the rental market.”

Paul Hunt, managing director of Phoebus Software is fairly positive about the state of the market: “While the mortgage market may not be in prime health, it has certainly lost its sickly tinge after April’s lull, and it is reassuring that the subdued level was nothing more than a blip after disruptive effects of the end of the stamp duty holiday.”

Month	Number	Monthly change	Annual change
Dec	52,939	0.6%	24.7%
Jan	58,728	7.0%	30.0%
Feb	49,778	-15.0%	7.0%
Mar	51,067	3.0%	9.0%
April	51,823	2.0%	12.0%
May	51,098	-1.0%	9.8%
e.surv June forecast	46,932	-8.2%	-3.9%

House prices are still seeing a period of steady annual inflation. While prices dipped in June, it marks the first fall in seven months, with a shortage of housing supply, alongside underlying confidence from buyers with large enough deposits, generally helping to support prices.

Mr Sexton puts this rise down to wealthy investors protecting their assets by investing capital in high-end property.

Tags: First time buyers, Lending, e.surv