The number of first-time buyers fell in September 2011 to the lowest level in almost a year as a result of mortgage providers approving fewer loans for borrowers with small deposits, according to the latest e.surv mortgage monitor.
Mortgage approvals in the cheapest price bracket (up to £250,000, which is considered typical first-timer property) accounted for only 22% of the total market in September, the lowest since November 2010 and well down on the 30% seen in 2006 when the housing market was near its peak.
Approvals for mortgages with a deposit of 25% or under fell to their lowest number since February, at 33.5% of all loans approved for purchase, compared with 43.2% in September 2007
The average loan-to-value in the cheapest price bracket fell to 66% – far below the 76% LTV seen in September 2006, as borrowers found it harder to secure mortgages with a smaller deposit.
E.surv said the decline in lower-income buyers fuelled a 1.7% total fall in mortgage purchase approvals in September, to 51,524, down from 52,410 in August. But approvals on homes in all price brackets above £250,000 remained steady.
Richard Sexton, business development director of e.surv, said: "With the economy in peril from every angle, lenders are playing it safe and training their sights on wealthier borrowers. But for those who can access mortgage finance, life is particularly sweet.
"Lenders are falling over themselves trying to offer the lowest fixed-rate deals, and the good news is that they look odds-on to remain particularly cheap for the foreseeable future. But that won't be of much comfort to first-time buyers who can't build the big deposit required to access these rates."
Matt Griffiths of first-time buyer campaign website PricedOut.org.uk agreed that conditions were leading to a widening gap between homeowners and prospective buyers.
He said: "For those blessed with home ownership, very low bank rates are giving large cash windfalls whilst saving capital values from sharp falls. But for those not on the ladder the financial storm is hitting their ability to get a mortgage whilst rental inflation hits their ability to save."
The research came as lender HSBC announced it intended to make £350m of lending available to borrowers with small deposits.
Separate research from LSL Property Services showed a 0.3% fall in house prices in September. David Newnes, director of LSL, said the modest summer recovery in the housing market "came to an abrupt end in September". He added: "There are still serious barriers to a sustained property market recovery. Outside London, prices are falling throughout England and Wales and this has contributed to a fall in the average house price."
Comments
14 October 2011 9:58AM
Another issue is that most banks won't lend to anyone on a temporary contract which is many of us these days. Even if you have the deposit, finding a lender can be very tricky in this situation..
14 October 2011 10:02AM
As harsh at it appears, there is no other solution. If houses were more affordable, the rental market would snap them up and rent them out again.
Maybe one possible solution is to limit the amount of mortgages any one person can hold. This should keep the small time speculators at bay or force them to buy a property outright if they want to add to their property portfolio.
The lenders don't want to do less business. So they are keen to lend to property speculators who can make the 20% deposit. By removing or restricting lending to speculators the lenders are more likely to want to lend to first time buyers at a lower deposit rate.
14 October 2011 10:04AM
Apparently there's been a terrible amount of lose lending (if you believe everything you read on CiF) which lead to house prices booming and (bizarely) a clamouring of tighter lending from FTB whiners ... so I guess this is the natural reaction (ie a drying up of lending to high risk borrowers). A classic case of beware of what you wish for and the law of unintended consequences.
14 October 2011 10:05AM
Its good to see the banks behaving responsibily. It is a good thing that the 100% mortgage has gone. It was a major cause of the current financial problems.
When we bought our first home in 1980 we had saved a deposit of about 25% of the price. That was the norm for everyone then.
We should all be learning to live with much lower levels of debt.
14 October 2011 10:12AM
...which these days equates to approximately £40,000. Since the average annual salary is £24,000, how do you suggest that first time buyers save this kind of money and "live with much lower levels of debt" while at the same time paying out the vast majority of their incomes on ever-rising rent, food, travel and energy bills?
14 October 2011 10:15AM
Yeah absolutely. I've just been turned down for a mortgage again and when I asked why they said it was because first time buyers have been whining on CiF. Banks are so petty.
14 October 2011 10:20AM
@ JoeDeM
When we bought our first home in 1980 we had saved a deposit of about 25% of the price. That was the norm for everyone then.
When you bought your first home in 1980, houses cost significantly less than they do today. In 1980, the average house cost £22,677, which works out to £84,876 in today's money in real terms. Today an average house will cost you double that at £166,597. So your 25% deposit is really only equivalent to a 12.5% deposit today.
Source: Nationwide House Price Index
14 October 2011 10:23AM
Why do Guardian articles so often have to manufacture a victim? "First-time buyers hit by lenders' caution" "women hit hardest by recession" "older women hit hardest by pension changes" "workshy hit hardest by benefits changes" etc. etc.
Saving money and sensible lending practices are a good thing. If people are no longer able to borrow 120% of the house value then prices will continue to fall to the level that can be borrowed. Tidy.
14 October 2011 10:29AM
There's a number of choices. A couple both earning around average salary could easily set aside £1500 per month between them whilst living at home. Or if they prefer to continue renting, move out your flat and house-share instead - perhaps share a room for 12 months, don't go out at weekends etc.
14 October 2011 11:22AM
@ Turnbull2000
There's a number of choices. A couple both earning around average salary could easily set aside £1500 per month between them whilst living at home. Or if they prefer to continue renting, move out your flat and house-share instead - perhaps share a room for 12 months, don't go out at weekends etc.
The average salary for people 25-29 in the UK works out to around £20,000. After tax, NI, student loan repayment and a modest pension contribution, that works out to around £15,500 take home pay. The basic cost of living for single working people in the UK is about £158 a week before housing costs.
Prior to deducting housing costs, this means that the average single working person 25-29 has around £7284 per year to play with. Let's say the cost of that room, is really low at £70 a week. Realistically, that person can save about £3500 a year. In fact, we'll have them live below a basic standard of living, you know, for the sake of saving up, and they can save an extra £500 by scrimping and saving.
Your hypothetical couple who want to buy a house can put £8000 a year away in the bank. Going by the Nationwide data again, the average fist time home is about £140,000. Saving for a 15% deposit will take them just over two and a half years.
14 October 2011 11:33AM
That's for those living independently. Outgoings should be much lower if you remain at home.
Two and a half years? Sounds an entirely reasonable time scale to achieve a good deposit. In fact, it's a bit on the low side.
14 October 2011 11:34AM
My mum and dad had this thing called a 'council house'. It meant they could have a roof over their heads for a very reasonable rent, and as long as they paid it, had security of tenure. 40 years they had that house.
Wonder what happened to those then?
14 October 2011 11:52AM
@ Turnbull2000
That's for those living independently. Outgoings should be much lower if you remain at home.
How many people have that option? For example, my parents a) don't have the room for an extra two people, b) have no desire to have their adult children live with them, and c) live in an area with few jobs and significantly lower salaries.
Two and a half years? Sounds an entirely reasonable time scale to achieve a good deposit. In fact, it's a bit on the low side.
That's two and a half years subsisting a bit below the cost of living in a shared room. I'd be impressed at any relationship that could survive for two and a half years in cramped surroundings with no money left over to have any kind of life. I don't think it's unreasonable for couples to want to rent a modest flat together and still be able to save for a deposit over a non-ludicrous timescale.
14 October 2011 12:56PM
"Mortgage approvals in the cheapest price bracket (up to £250,000, which is considered typical first-timer property)....."
In what universe? The average house price across the whole market is only £160,000 so below £250,000 must cover something like 70-75% of all homes in the country. The average first time buyer home is £126,500 according to the CML's latest data this week.
So, if demand is 22% down in the sub-£250k, surely that actually means that demand is down that much across almost the entire market?
14 October 2011 1:31PM
but will it be so sweet when their prized asset plummets in value over the coming years?
14 October 2011 1:40PM
The withdrawal of the 100% or even 95% mortgage was quite unnecessary, and is stifling the whole market. What is more important is lending people an amount of money that they can afford to pay back from their regular income.
Being a homeowner, and having recently applied for mortgages, I've found that some banks were prepared to lend me money that I would never borrow because I couldn't comfortably make the repayments. However would they lend me an amount that I could comfortably pay without at least a 10% deposit? Absolutely not. I realise that lenders want sufficient collateral against their loans, but nobody defaults on a mortgage unless they absolutely have to. Provided the lending is responsible, the collateral becomes less important.
Seems obvious which of these options represents the most risk - which makes me question the real motives behind the withdrawal of high LTV mortgages.
14 October 2011 2:37PM
If the Government embarks on a programme of building social housing, they can rent them out at reasonable rates and this would force private landlords to lower their rates in order to be competitive.
This could then have the knock-on effect of BTL Landlords releasing properties back to the market as the profit margins they reap would diminish (especially if interest rates go up).
Further more it would be welcome boost to the Building Industry.
14 October 2011 3:43PM
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14 October 2011 3:51PM
My mum and dad had this thing called a 'council house'
Actually, they never "had" it. It belonged to the tax payer. What pervades this whole area is a sense of entitlement which annoys a lot of tax payers.
We should certainly be supporting those who need it by providing a safety net. However, it's not the tax payer's responsibility to subsidise those able to pay... even if that means someone living in an area that doesn't suit them or having lower quality accomodation than they would like.
There's ample housing in this country. What's missing is the willingness to live within means.
14 October 2011 9:28PM
Yeah absolutely. I've just been turned down for a mortgage again, and when I asked why they said it was because market rampers on cif had already taken all the, and i quote, "lovely slushy free money".
Ah the old "live within your means" line, example from me, 1 couple in there mid 20's, one a college lecturer the other a professional engineer, no kids, affordable (buying) for them is borderline drug/high unemployment area.... yeah that sounds right, what a halfwhit comment.
14 October 2011 9:30PM
... oh and thats North West not our scuzzy capital.
SWL ruuuules!!
15 October 2011 3:09PM
FTB non whiners meanwhile will reap the rewards of lower house prices, lower interest rates which are here for some time along with sensible lending criteria. Looks like happy days ahead at last for many of the FTBs on these boards then.
15 October 2011 9:25PM
Nothing wrong with 95% or even 100% mortgages. The problem is the salary multiples that were being offered.
If you earn 25K and get a 95% mortgage on an 80K house where's the risk? Contrast this with the 95% mortgages being offered to those earning 25K but against properties costing 200K, which was the norm back in the Blair-Brown credit boom days.