But the modest improvement was due almost entirely to an increase in lending to wealthier buyers. First-timers struggled in November, with purchase approvals on cheapest property (below £125,000) accounting for just 22% of overall house purchase lending – the lowest proportion for 14 months. Banks focused on lending more to wealthier buyers. House purchase loans rose on all property valued at over £500,000, notably in the £500,000 to £750,000 bracket.
Lending to borrowers with small deposits – a good barometer for the health of the first-time buyer market – slipped to its lowest since July 2011. Loans to borrowers with a deposit of less than 15% accounted for just one in eleven of total house purchase loans in November. Lending to borrowers with a small deposit fell by 33% compared to last November, with just 4,847 loans compared to 7,180 last year. And despite overall lending increasing by 1% between October and November, loans to borrowers with small deposits fell by 6% over the same period, indicating the slight improvement seen in first-time buyer lending over September and October has fizzled out.
Despite the Funding for Lending Scheme boosting lenders’ mortgage credit over the fourth quarter, the cheaper funds have so far failed to translate into an improvement in first-time buyer lending. FLS has lowered mortgage rates, but criteria failed to loosen in November, with banks content to focus on lower-risk low LTV borrowers, which meant borrowers still had to stump up large deposits on order to get a mortgage. The average LTV on property below £125,000 (typical first-timer property) fell to 66%, the lowest since February 2011, indicating only first-time buyers with plenty of equity were able to get a house purchase loan in November.
Overall, despite the improvement in lending, it was the third weakest November for house purchase lending since records began in 1993. To underline the lack of improvement in the long-term, lending was 10% lower than November 2009.
Richard Sexton, business development director of e.surv, explains: “The slight improvement in overall lending glosses over the on-going struggles of first-time buyers. High LTV lending is a third lower than it was this time last year, which suggests things remain challenging for new buyers. Mindful of their risk profile and capital adequacy requirements, lenders appear to be focusing increased lending on relatively wealthy borrowers.
Although banks’ can access cheaper funds to use for lending, they’ve kept criteria tight on mortgages for first-time buyers. Although rates have fallen on some of these mortgages, lenders still require big deposits to access them, which means first-time buyers who couldn’t qualify for a mortgage three months ago are still no better off.
Lending has been essentially flat over the last two years, and the market has had to console itself by cheering small victories like marginal increases in monthly lending. If the market is to start a proper long-term rehabilitation, it will need a sustained improvement in first-time buyer lending. This looks some way off, not least because of tough capital adequacy requirements which leach away funds that could be earmarked for high LTV lending.”
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