Purchase approvals dropped 2.5% in July, down from 48,421 in June to a seasonally adjusted 47,228, as lenders retreated from the market to nurse balance sheets after a concerted push to meet mid-year lending targets.
Approvals fell on all price brackets below £750,000, with lower income buyers in particular struggling to secure mortgage finance against a backdrop of tighter lending conditions.
This was reflected in LTVs, which fell to a sixth-month low. Despite more high LTV products entering the market this summer, high LTV lending declined because tight qualifying criteria excluded too many borrowers.
Purchase approvals with an LTV over 85% were the lowest since February, accounting for only 8.5% of all approvals in July, down from 9.4% in June. By way of comparison, in August 2008 this figure was 22.2%.
The average LTV fell to 60.3%, again the lowest since February.
Lower income buyers were the hardest hit. Despite more high LTV products entering the market, lending criteria tightened most at the lowest end of the property ladder.
Approvals on homes below £250,000 fell to their lowest level this year. Approvals on typical first-timer property (under £125,000) accounted for just 23% of all approvals in July, well below the highs of 30% seen in August 2008.
LTVs fell fastest in the cheapest price brackets. LTVs on typical first timer property were at the lowest for six months (67%), meaning low income buyers required larger deposits to qualify for mortgage finance. Before the economic downturn in 2008, the average LTV for first-timer property was 76%.
Purchase approvals increased marginally in the highest price brackets, because wealthier buyers have better access to mortgage finance. As a result, these wealthier buyers continue to represent a disproportionate share of the market.
The regional breakdown told a tale of an unusually poor month for London. Month-on-month purchase approvals fell across the board, apart from in Cumbria and the North East where they rose 3% (non-seasonally adjusted).
London saw the greatest fall (13%), although this did come after a particularly strong June when purchase approvals rose by 12%. The other regions which saw the biggest falls in approvals were the South and South Wales (10%) and the East (4%).
The decline in London activity included a fall in the number of lower income buyers.
Although first-timer numbers remained static nationally, approvals for properties up to £250,000 – typical first-timer property in the capital – accounted for only 40% of all approvals in July, down from 43% in June, highlighting the ongoing struggles of lower income buyers in the capital city.
This is reflected in the average LTV in London, which was 59.5%, below the national average of 60.3%, due largely to the pool of wealthier buyers in the capital who have greater equity.
Richard Sexton, business development director of e.surv said:
“Weak growth has handcuffed banks and given them almost no margin to increase mortgage lending. Given the economic backdrop, the uptick in lending seen in June seems to have been a flash in the pan.
"We expect lenders will now focus on consolidating balance sheets and recouping equity in the third quarter. They only upped the ante of their lending in a bid to meet mid-year targets, so the next few months should see a return to a more subdued trend.
“For those who can access mortgage finance, the good news is that fixed rate deals seem certain to remain particularly cheap, meaning now is a good time to lock in low repayments.
"The UK resembles an island of calm amid the international economic turmoil, which great news for borrowers as it means repayment rates will remain low for the foreseeable future.”
David Brown, commercial director of LSL Property Services said:
“Until mortgage lenders regain confidence in the UK economy there’s no prospect house prices rising significantly. There’s plenty of demand for lower-cost homes, but first-time buyers are being strangled by a lack of mortgage finance.
"High LTV borrowers always suffer most when lenders are concerned about risk and with sluggish growth and the possibility of a sovereign debt crisis in the US and Eurozone, it’s hard to blame lenders for getting the jitters.
"But it’s important to bear in mind that the prospect of continuing low interest rates for possibly another year has made mortgage finance highly affordable. Deals at higher LTVs are now very cheap and this has given a big boost to buyers who can pull together sizeable deposits."
