RESI 2012: Mortgage market reaches historic low

Rachel Hunter

Only 48,913 residential mortgages were issued in the UK in August – the worst August for nearly 20 years.

Research conducted by e.surv chartered surveyors shows an 8% year-on-year drop, as tightening credit conditions and the effects of the double-dip recession moved the mortgage market back towards its 2010 levels.

The Mortgage Monitor report found the contraction was the result of a sharp fall in lending to borrowers with deposits of less than 15%.

High loan-to-valuelending fell 10% compared to last August. There were just 4,950 loans to buyers with a deposit of less than 15% last month, down from 5,463 in August 2011. This represented just one in ten of all house purchase loans in August, compared to almost one in seven back in January. The average loan-to-value ratio on a house purchase loan has now fallen below 60% for the last three months, reversing a seven month period where it was at least 60%.

Richard Sexton, business development director at e.surv, said:“Much of the progress the mortgage market has made since summer 2011 has been unravelled by the double-dip recession Lending volumes – particularly to first time buyers – are slipping back towards the dismal levels we last saw in 2010 and early 2011. This is largely thanks to a fall in the number of high-loan-to-value mortgages banks are willing to grant. Credit conditions for banks have become painfully tight, and they’ve responded by toughening criteria on mortgages aimed at borrowers with small deposits. The distraction of the Olympics, the awful weather and holiday season could also all be reasonably cited as potential contributory factors.”

The decline in home loans over the last quarter has also been stark, the report found. The period between August 2011 and May this year saw an average of 52,343 house purchase loans per month. Since May this has dropped sharply by 11% to 46,783. First time buyers, and buyers with low deposits, have been hit disproportionately hard by the drop-off in lending as banks focus on lending to lower loan to value retios, and by extension less risky, buyers.

The analysis from e.surv also said more landlords have stepped in to fill the vacuum left by first-time buyers at the bottom of the market. Despite overall purchase approvals falling 8% year-on-year, approvals on property worth less than 125,000 only fell by 4% as landlords looking to take advantage of record rents purchased cheap property.

“Tight mortgage lending conditions are a virtuous circle for landlords and vicious one for first-time buyers,” said Sexton. “The fewer first-time buyers there are, the cheaper property becomes for landlords, and the more expensive rents get. We expect landlords to continue to represent a disproportionate share of the buying market in the medium-term. Would-be buyers will hope the government’s Funding for Lending Scheme can help improve the flow of credit in the near future.”

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