David Prosser: Mortgage lending is weak because buyers lack the required deposits


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The Independent Online

Outlook The good news, says the housebuilder Persimmon, is that Britain's housing market has stabilised. But, it warns, there is not much reason to be optimistic about the chances of an upturn because mortgage availability remains such a problem.

Over at the British Bankers' Association (BBA), the story is a little different. Yes, mortgage lending was static again last month, the BBA says, but with the cost of home loans now at record lows, it is a lack of demand, rather than supply, that is to blame.

How then to reconcile these apparently contradictory statements? Well, here's the problem: while mortgage lenders have cut their rates – both fixed andvariable – and made more funds available, the number of products at 95 per cent loan to value (LTV) or more remains tiny. That is the issue for the first-time buyers: it is not that they are being turned down for mortgages, but that they do not have the deposits required to borrow. In other words, demand is low because supply of the right kind of mortgage is still constrained.

There isn't much prospect of that difficulty being overcome any time soon. The BBA's latest figures show that savers were able to put by only half as much last month as they managed in July 2010. And if it is getting harder to save for a deposit on a home, lenders, still running scared of bad debt, are not inclined to begin offering greater numbers of high LTV products.

Persimmon is frustrated, for it believes there is a big pool of would-be first-time buyers out there, many of whom would be perfectly capable of staying on top of mortgage repayments if only they could scrape together sufficient deposit to qualify for a loan in the first place. The logjam at the bottom is a problem for everyone else in the market too, of course – while many of those who would like to move home have sufficient equity in their properties not to have toworry about high LTV requirements, movers depend on there being a supply of first-time buyers at the bottom of the chain.

It would be interesting to hear more from regulators on thismatter. The new Financial Policy Committee (FPC), charged with monitoring serious systemic economic and financial risk, is likely to have the power to require minimum LTVs in the event it gets concerned about a housing-market bubble. But Andrew Haldane, a Bank of England official who sits on the FPC, said last week that it ought also to consider supporting credit growth during difficult times for the economy. Could that be the key to helping more people into the housing market?