Home purchase loans show slump

Loans for home purchases slumped by 8% last month as lenders clamped down on mortgages for those with small deposits, according to research.

Lending to borrowers with a deposit of less than 15% of the purchase price dropped 10% year-on-year in August, driving the overall number of home purchase loans down to 48,913 - the third worst August since records began nearly 20 years ago, chartered surveyors e.surv said.

Its latest Mortgage Monitor revealed that there were just 4,950 loans to buyers with a deposit of under 15% last month, accounting for just one in 10 of all house purchase loans in August, compared to almost one in seven in January.

A squeeze on funding in money markets last month saw lenders clamp down on higher loan-to-value (LTV) mortgages, e.surv said.

The research showed the average LTV on a house purchase loan has now fallen below 60% for the last three months.

Richard Sexton, business development director of e.surv, said: "Lending volumes - particularly to first time buyers - are slipping back towards the dismal levels we last saw in 2010 and early 2011.

"This is largely thanks to a fall in the number of high-loan-to-value mortgages banks are willing to grant.

"Credit conditions for banks have become painfully tight and they've responded by toughening criteria on mortgages aimed at borrowers with small deposits."

It is thought that landlords are stepping in to snap up properties left out of reach of first time buyers and to capitalise on record rent levels.

But e.surv said on a month-on-month basis, the number of home purchase loans rose 3%, although it stressed this was set against a weak borrowing market in July when approvals fell 5%.