First-time homebuyers hit record low

The number of first-time homebuyers has slumped to just 1,000 a day across the country, the lowest level since records began more than three decades ago, the major lenders said yesterday.

Only 30,000 would-be owners took out a mortgage last month compared with the 48,000 who entered the market in the same month last year, the Council of Mortgage Lenders said.

First-time buyers now make up just 29 per cent of all borrowers, which the CML said was the smallest share of the mortgage market since 1969 when records began.

The dearth of activity on the bottom rungs of the property ladder will raise fears that the housing market is likely to grind to a halt as transaction levels slump. Michael Coogan, the CML's director general, said that despite the lowest mortgage rates for a half a century, high house prices were making it hard for first-timers to get a foot on the ladder.

"This is beginning to make it harder for sellers further up the chain to sell their properties," he said. "This is one of the reasons why we expect the slowdown in momentum to continue."

During the first six months of 2003, only 174,000 people bought their first home, compared with 253,000 during the first six months of 2002.

Paul Dales, UK economist at the Capital Economics consultancy that is forecasting a major housing crash, said there was clear evidence of a slowdown at the bottom end of the market.

"It is only a matter of time before this is reflected further up, prompting the significant housing slowdown we have been expecting," he said.

Separate figures are pointing to a slowdown at the top end of the housing market as the slump in City employment and bonuses hits home.

However, the drop in house-buying activity was offset by a fresh surge in remortgaging and equity withdrawal as existing homeowners looked to take advantage of the latest cuts in lending rates.

Almost half of all loans in June were for remortgaging, while their value, at £10.3bn, took the total for the quarter to a record £31.2bn.

This is almost certain to push mortgage equity withdrawal (MEW) - where homeowners take out a new mortgage to cash in on the surge in their home's value - to a new all-time high in the second quarter of the year.

More significantly it could take MEW as a share of post-tax income above the symbolic high of 7.7 per cent achieved in 1988, just before the housing market embarked on a seven-year slump.

This will alarm those members of the Bank of England's monetary policy committee who are concerned that its policy of cutting interest rates to avert a recession is building up an unsustainable debt bubble.

John Butler, an economist at HSBC, said: "Consumers' appetite for debt will only have received a further boost from the latest interest rate cut.

"The Bank of England is playing with fire by actively encouraging consumers to take on even more debt."