New mortgage lending slumps to third worst August on record
House purchase loans in August fell 8 per cent year-on-year to 48,913 – the third worst August for almost 20 years, according to the latest Mortgage Monitor from e.surv chartered surveyors.
The mortgage market is back towards its 2010 levels and the contraction is due to a sharp fall in lending to borrowers with deposits of less than 15 per cent, said e.surv.
Since 1993, when the Bank of England’s records begin, only 2008 and 2010 have seen lower lending levels during August. On a year-on-year basis, loans for house purchase in August fell from 53,040 to 48,913.
Tightening credit conditions over a three month period came to a head last month, forcing lenders to toughen lending criteria on high loan-to-value mortgages and scale back their lending to borrowers with small deposits.
There were just 4,950 loans to buyers with a deposit of under 15 per cent last month, down from 5,463 in August 2011. This represented just one in ten of all house purchase loans in August, compared to almost one in seven back in January.
The average LTV on a house purchase loan has now fallen below 60 per cent for the last three months, reversing a seven month period where it was at least 60 per cent.
Richard Sexton, business development director of e.surv, explained: “Much of the progress the mortgage market has made since summer 2011 has been unravelled by the double-dip recession.
“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. The distraction of the Olympics, the awful weather and holiday season could also all be reasonably cited as potential contributory factors.”
It is the third consecutive month where lending has fallen on an annual basis, and was the biggest year-on-year fall for 15 months. This suggests the market is beginning to regress following a period of improvement stemming back to last summer, when, prior to May this year, purchase approvals rose on an annual basis for 12 consecutive months.
The decline in home loans over the last quarter has been stark. The period between August 2011 and May this year saw an average of 52,343 house purchase loans per month. Since May this has dropped sharply by 11 per cent to 46,783.
Sexton commented: “The drop in lending is a measured response by lenders to the increasingly tough economic landscape. Lenders funding costs have increased by around 35 per cent since January, and they have lost a great deal of confidence in the government’s economic growth plan.”