House purchase loans in August fell 8% year-on-year to 48,913, according to the latest Mortgage Monitor, produced by e.surv chartered surveyors.
This represented the third worst August for almost 20 years as tightening credit conditions and the effects of the double-dip recession moved the mortgage market back towards its 2010 levels.
The research found the contraction was the result of a sharp fall in lending to borrowers with deposits of less than 15%. Tightening credit conditions over a three month period came to a head last month, forcing lenders to toughen lending criteria on high loan-to-value mortgages and scale back their lending to borrowers with small deposits.
High LTV lending fell 10% compared to last August. There were just 4,950 loans to buyers with a deposit of under 15% last month, down from 5,463 in August 2011. This represented just one in ten of all house purchase loans in August, compared to almost one in seven back in January. The average LTV on a house purchase loan has now fallen below 60% for the last three months, reversing a seven month period where it was at least 60%.
“Much of the progress the mortgage market has made since summer 2011 has been unravelled by the double-dip recession Lending volumes – particularly to first time buyers – are slipping back towards the dismal levels we last saw in 2010 and early 2011,” said Richard Sexton, business development director of e.surv.
“This is largely thanks to a fall in the number of high-loan-to-value mortgages banks are willing to grant. Credit conditions for banks have become painfully tight, and they’ve responded by toughening criteria on mortgages aimed at borrowers with small deposits. The distraction of the Olympics, the awful weather and holiday season could also all be reasonably cited as potential contributory factors.”
Since 1993, when the Bank of England’s records begin, only 2008 and 2010 have seen lower lending levels during August. On a year-on-year basis, loans for house purchase in August fell from 53,040 to 48,913. It is the third consecutive month where lending has fallen on an annual basis, and was the biggest year-on-year fall for 15 months.
E.surv says this suggests the market is beginning to regress following a period of improvement stemming back to last summer, when, prior to May this year, purchase approvals rose on an annual basis for 12 consecutive months.
The decline in home loans over the last quarter has been stark. The period between August 2011 and May this year saw an average of 52,343 house purchase loans per month. Since May this has dropped sharply by 11% to 46,783. First time buyers, and buyers with low deposits, have been hit disproportionately hard by the drop-off in lending as banks focus on lending to lower LTV, and by extension less risky, buyers.
Sexton added: “The drop in lending is a measured response by lenders to the increasingly tough economic landscape. Lenders funding costs have increased by around 35% since January, and they have lost a great deal of confidence in the government’s economic growth plan. Many have now accepted the economy is likely to remain, at best, stagnant for the foreseeable future. Instead of increasing their exposure to high loan-to-value mortgages while the economy is in such a tender state, they are focusing on protecting their balance sheets against any more nasty surprises.”
