Mortgage freeze hits first-time buyers hardest

Overall, there were 40,000 loans advanced for house purchase in April worth £5.7 billion, down from 45,000 (worth £6.3 billion) in March but up from 35,000 (worth £4.5 billion) in April 2009. April’s seasonal dip was expected due to the Easter break and the underlying trend is of a gradual recovery in house purchase lending.

The dip was more strongly felt in remortgage activity, where the trend remains firmly down in contrast to lending for house purchase. There were 24,000 remortgage loans worth £2.9 billion, down 16% (17% in value) from March and 26% lower (both in volume and value) than a year ago. With expectations for rates to remain low for the immediate future, and lending criteria still tight, remortgaging is likely to remain muted.

Although there has been some increase this year in the number of higher loan-to-value products available, this has not yet translated into a sustained increase in loans to borrowers with lower deposits. The tentative signs of easing experienced in March returned to their previous levels in April, with the typical first-time buyer borrowing 75% and the typical home mover 67% of their property’s value.

Michael Coogan, of the CML, said:

"Easter traditionally causes a dampening of lending levels and this year was no exception. First-time buyers were particularly affected, perhaps because of the alteration to stamp duty, and in anticipation of the changes arising from the economic and political uncertainty of recent months.

"Lending for house purchase still looks modestly positive compared to 2009. But there remain a number of significant risks to this – in particular the potential for increased public sector unemployment arising from the government’s debt reduction programme, and higher taxation feeding into levels of disposable income."

Jonathan Moore of easyroommate.co.uk said:

“This is more than an Easter dip – or the knock-on effect of political anxiety in April. The lending market is still in the middle of a very real mortgage freeze – which is hitting first-time buyers hardest. The figures show that the stamp duty break hasn’t helped first-timers get onto the market.

"Despite increasing demand, they are still being left out in the cold. Lenders are still only providing 75% of a house’s value, forcing buyers to stump up huge sums of cash as deposits, and thousands of young buyers cannot get a foot on the housing ladder without backing from the Bank of Mum and Dad. 

"The housing market’s recovery will not pick up pace until lenders grasp the nettle and begin to offer first-timers more achievable loan-to-value mortgages. One solution is for state-backed banks to start taking flatmate rental income into account when lending.  If first-timers were allowed to borrow a bit more using a “Flatmate Mortgage”, it would offer a real shot in the arm to the first-time buyer market – without furthere costly tax-breaks.”

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