More buyers were able to secure mortgages with a smaller deposit as lenders loosened criteria. High LTV lending rose to its highest level this year, contradicting the latest Bank of England Credit Conditions Survey which said lenders would focus more on targeting low LTV borrowers in Q3. Buyers with a deposit of 15% or under accounted for more than 10% of total approvals in August, a high for 2011, but still well short of the 22% seen in August 2008. Purchase approvals with a high LTV grew at almost twice the pace of the rest of the market in August.
Criteria loosened most at the bottom of the market, fuelling a rise in the number of lower income buyers. Approvals increased on all price brackets below £750,000, with the greatest growth seen in typical low income and first time buyer property. Approvals in the price bracket up to £125,000 – typical first timer property – accounted for 24% of all approvals, the highest since April. LTVs rose fastest on the cheapest price brackets as lending conditions loosened most for low income buyers, with the average LTV on the cheapest price bracket rising from 67% in July to 68% in August.
August is usually a quiet month, but it was an unusually poor one for London as purchase approvals dropped 10% (non-seasonally adjusted) from July. The regional picture for purchase approvals was more varied. Approvals increased in the Northwest and Scotland. Along with London, Yorkshire and the North East saw the greatest fall in approvals.
The fall in approvals in the capital was triggered by a decline in approvals on the most expensive property. Approvals held up well on the cheapest price brackets thanks to a marginal increase in high LTV lending. However, high LTV lending was significantly lower in the capital compared to the rest of the country. Approvals with an LTV of over 85% accounted for just 4% of the total number of approvals in August, less than half the national average of 10%, because wealthier buyers with larger deposits continue to represent a disproportionate share of the market, and because even a small percentage deposit represents a very large sum due to higher house prices in the capital. The average deposit for purchase approvals in London was 41.5% in August, the highest since January, and the highest in the country, reflecting the larger pool of wealthier buyers in the capital.
Richard Sexton, business development director of e.surv said, “The uptick in high LTV lending is encouraging, and lenders may still be trying to garner market share. But we shouldn’t get too carried away and begin hailing this as a portent of long term recovery. High LTV lending still lags well behind the levels we saw back in 2008, and a slight loosening in criteria only makes a small dent in the vast backlog of buyers stuck in the rental market.”
“The major high street lenders still have their hands tied by weak economic growth and stringent core capital requirements. The Bank of England warned many high street lenders have a high percentage of high or very high LTV lending on their books, and provisions may not adequately cover forborne loans. In practice lenders can do little to grow loan books while under pressure on capital.”
“For those who can get mortgages, the good news is that fixed rate deals seem certain to remain particularly cheap. The UK has been like a fortress in repelling the international economic contagion, which is good news for borrowers as it means repayment rates will stay low for some time to come.”
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