Home loans fall as banks cut lending to first time buyers

Loans for house purchase dropped by 8% in June to 46,932, the lowest since May last year

Burdyke Avenue in York, on for £129,950

Banks are scaling back their lending to first-time buyers, according to the latest Mortgage Monitor from e.surv chartered surveyors. As a result first time buyer numbers fell steeply with 10,325 loans for house purchases under £125,000 (typical first-time buyer property), a fall of 12% from May.

The results come as HSBC today launched the lowest ever five year fixed rate mortgage so that borrowers with a 40% deposit or equity will be able to take advantage of a rate of 2.99% fixed for 5 years.

First time buyers were the hardest hit in the sharp fall in loans to borrowers with small deposits. The number of loans to borrowers with a deposit of under 15% dropped from 5,510 in May to 4,750 in June, the lowest since last October.

House purchase loans were 4% lower than in June last year which represents the first year-on-year fall for 13 months, while the average deposit on a house purchase loan rose above 40% for the first time since February 2011.

“The mortgage market is slipping back into a state of paralysis," said Richard Sexton, business development director of e.surv. "Banks are shipping their increased costs onto borrowers like a hot potato. It costs banks up to 40% more to fund a mortgage than it did in February, which is squeezing their balance sheets like a vice. They’ve responded by upping rates and reducing the number of mortgages they grant. First time buyers have been hardest hit because they have smaller deposits, so are seen by banks as riskier borrowers. While credit is so scarce, banks would rather focus on sustaining lending to wealthier borrowers and buy-to-let landlords."

Sexton added that he believed a significant improvement in mortgage lending looked a long way off, although the government’s Funding for Lending scheme could provide some help.

Peter Rollings, CEO of estate agent Marsh & Parsons, said: “It’s still incredibly tough out there for first-time buyers looking to secure a big enough mortgage to purchase their first home, and the housing market is being supported by cash buyers and the equity-rich, especially in the capital where prices are in a league of their own.”