UK property buyers facing tighter lending conditions, figures suggest

Loans for new buyers dropped to lowest level for nine months, figures show

First time buyers in the UK have been the hardest hit by tighter lending conditions with loans for new buyers dropping to their lowest level for nine months, the latest figures show.

Renewed Eurozone fears have prompted banks to reduce lending to borrowers with low deposits, according to the April Mortgage Monitor from e.surv chartered surveyors.

Loans on typical first time buyer properties worth up to £125,000 fell 5% compared with March and are 1.2% down on April last year.

Banks blamed increasing mortgage funding costs and renewed fears over their exposure to the eurozone crisis for the reduction in lending, according to the firm, the UK’s largest housing valuation firm.

It is the third successive month in which first time buyer loans have fallen, confirming the Bank of England’s view that banks and building societies are pulling back from lending to borrowers with small deposits over the summer.

Overall loans for house purchases fell 1.4% in April from March. Banks lent disproportionately to wealthier buyers, reflecting their reduced appetite for lending to riskier borrowers. Despite the 5% fall in loans for the cheapest property, approvals in all price brackets over £350,000 increased. This helped prevent overall purchase approvals falling more steeply.

The tighter lending conditions were evident as the average deposit on a house purchase loan rose above 40% for the first time since February 2011. April was the fourth consecutive month in which the average loan to value has fallen, suggesting it is becoming increasingly more difficult for borrowers to access high LTV loans.

‘Banks and building societies can’t afford to sustain their current levels of high loan to value lending. In addition to their increased funding costs, they are also concerned about their exposure to the debt riddled European countries, and the increasingly precarious state of borrower finances in the UK,’ said Richard Sexton, business development director of e.surv.

‘As a result they’ve begun to scale back lending to first time buyers. If the Bank of England’s Credit Conditions Survey is anything to go by, in which lenders reported a drop in mortgage credit for the first time since summer 2010, they’ll be forced to continue this trend into the early summer. Brighter times should return once the turmoil in the wholesale markets eases, and lending to first time buyers should begin to pick up again,’ he explained.

Meanwhile, the latest figures from the Council of Mortgage Lenders shows that new buy to let lending in the UK in the first quarter of this year was 5% down on the fourth quarter of 2011. While 32% higher than in the first quarter of 2011, buy to let lending is still only around a third of its 2007 levels.

Buy to let lending for house purchase in the first quarter fell by a greater amount, 9%, than remortgaging at 1%, but both were around 30% higher than in the first quarter of 2011.

The buy to let sector continues to increase its share of the mortgage market, with buy to let mortgages representing an estimated 12.8% of the total value of outstanding mortgages at the end of the first quarter, up from 12.6% at the end of 2011 and 12.2% at the end of the first quarter of 2011. The total number of buy to let mortgages stands at just over 1.4 million, with a total value of £159.4 billion.

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