11 May

First Time Buyers Suffer in April as Banks Crank Up Deposit Requirements

Posted 11/05/2012 by: Reeds Rains

The April 2012 Mortgage Monitor from e.surv has been released today the report shows that first time buyers have been the hardest hit by tighter lending conditions, as loans for new buyers drop to their lowest level for 9 months.

Data from the Mortgage Monitor reports that:

  • Loans for house purchase drop to 49,165 in April 2012
  • Renewed eurozone fears prompt banks to reduce lending to borrowers with low deposits
  • Average deposit increases to 40%
e.surv mortgage monitor

Effects on First Time Buyers

Mortgage approvals for first time buyers fell to their lowest level for 9 months in April as banks scaled back their lending to borrowers with small deposits, according to the April Mortgage Monitor from e.surv chartered surveyors.

Loans on typical first time buyer property (worth up to £125,000) fell to just 11,307 in April, 5% lower than in March, and 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.

The Mortgage Monitor showed 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.

First time buyers were the hardest hit as banks reduced the availability of high loan-to-value mortgages in April in response to increasing funding costs and tightening credit conditions. There were fewer loans to borrowers with small deposits, as the number of loans granted to borrowers with a deposit of 15% or under fell to 5,309, well below the three-month average of 6,229.

The UK Housing Market

In the overall market, loans for house purchases fell to 49,165 in April, a fall of 1.4% 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. Purchase approvals were up 7.4% compared to April last year, however April 2011 was a weak month by historic standards.