Borrowers with smaller deposits accounted for the largest portion of house purchase lending in five months in February, according to the latest Mortgage Monitor from e.surv.
Higher LTV house purchase approvals (loans to borrowers with a deposit of up to 15% of the total value of their property) made up 16.9% of house purchase approvals in February, a significant proportional increase from 15.3% in January and just 13.9% in December.
Higher LTV approvals formed the largest proportion of total house purchase lending since September 2014.
As a result, the absolute number of higher LTV approvals has bounced-back. There were 10,298 higher LTV loans in February, 10.7% more than 9,300 in January. February also marks the third consecutive month of growth in higher LTV approvals.
The rise was partly driven by rising property prices. The average purchase price for first-time buyer homes climbed to a new record of £160,304 in January, 12% higher than January 2014, according to the latest First Time Buyer Tracker from Your Move and Reeds Rains.
Richard Sexton, director of e.surv chartered surveyors, explains: “Lending to lower-deposit borrowers is back on track, which is encouraging as the mortgage market moves into spring. Higher LTV borrowers took a nosedive in October as a proportion of the market, after the introduction of loan-to-income caps became a challenge for first-time buyers. But these buyers are evidently returning to the market to take advantage of low mortgage rates and cheaper stamp duty charges. And after the tricky bedding in phase that accompanied new mortgage legislation, first-time buyers are now once again accessing a market restructured for long-term viability.
“Even with this revival, we’re safely below the high-tide mark of higher LTV lending seen back in 2007 – when smaller deposit borrowers made up around a third of total lending. The Mortgage Market Review has ensured that all future borrowers are subject to comprehensive affordability checks and given plenty of advice, and so the danger of them defaulting has been reduced. Many prospective borrowers are unable to save up a massive sum for a deposit – but they often still have strong monthly incomes and make attractive customers for lenders. Low deposits do not necessarily need to mean high risk.”
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