Purchase approvals for homes under £125,000 – typical first time buyer property – accounted for only 23% of all purchase approvals in May, compared to 27% in April, and below the average for the last year (24%).
Purchase approvals rose steadily in the highest price brackets because wealthier buyers are less affected by tightening lending criteria. Indeed they require the lowest LTVs. As a result these buyers continue to secure a disproportionate share of mortgages.
The overall average LTV for mortgages approved in May fell slightly from 61.0% in April to 60.4%, reversing a seven month trend of improvement. The tightening of lending conditions was most pronounced at the bottom end of the market where LTVs decreased or remained flat on all house price bands up to £376,000.
The average LTV for first-time buyer properties under £125,000 fell more sharply from 67.8% in April to 67.1%, meaning fewer low income buyers were able to secure a mortgage. Purchase volumes in the 90% to 100% LTV bracket, typically needed by first-time buyers, grew at less than half the pace of the overall market.
Overall purchase approvals rose 1.1% in May driven by higher value homes, up from 45,166 in April to 45,675. Nevertheless, they are still down 7.9% on May 2010 during the mini-boom in the housing market before the election.
Richard Sexton, business development director of e.surv said:
“With base rate hikes seemingly off the agenda for at least another six months, it’s great timing for homeowners and buyers to benefit from falling mortgage rates. Those with the least equity in their homes need cheaper rates most, so it’s important lenders don’t make it too difficult to qualify for the best mortgages.
"Tightening criteria in May are going against this grain. Some lenders are ahead of the pack and are offering good deals, but for others it’s not enough just to advertise a good headline rate.”
David Brown, commercial director of LSL property services comments on e.surv’s latest Mortgage Monitor:
“There have been indications that mortgage rates have been dropping for homebuyers.
"But this won’t be of any comfort to the thousands of first-time buyers who are being kept off the property ladder by the need for large deposits and restricted mortgage availability – and any immediate improvement doesn’t seem to be on the cards. In fact, the average LTV at the lower end of the market dropped markedly last month.
"This is causing a bottleneck on first-time buyer demand, which is driving would-be buyers into the private rental sector in their droves.
"Until this pressure on buy-to-let accommodation is alleviated, rents will continue to head northwards, and it will only be a matter of weeks before the average rent crashes through the £700 per month barrier.”
