First-time buyers suffer as deposits rise

Tighter lending conditions have seen mortgage approvals for first-time buyers fall to their lowest level for nine months.

A report by e.surv chartered surveyors said that first-time buyers were hit hardest as banks lent less to borrowers with small deposits.

Increased mortgage funding costs and new fears over the Eurozone crisis were blamed for the reduction in lending.

Loans on properties worth up to £125,000, typical properties for first-time buyers, fell 5% between March and April, the third successive month in which lending to new buyers has fallen.

The average deposit increased to over 40% for the first time since February 2011, confirming the Bank of England's view that banks and building societies would slow the rate of lending to borrowers with small deposits over the summer.

Richard Sexton, business development director of e.surv, said:

"Up until the early spring, mortgage lenders did a sterling job of coping with steadily increasing funding costs imposed by investor anxiety in the wholesale markets. They absorbed them, rather than passing them onto borrowers. This helped them cater for the rush of first-time buyers looking to beat the Stamp Duty deadline, and helped boost activity in the housing market over the late winter and early spring.

"But we've reached a tipping point now. Banks and building societies can't afford to sustain their current levels of high loan-to-value lending.

"In addition to their increased funding costs, they are also concerned about their exposure to the debt-riddled European countries, and the increasingly precarious state of borrower finances in the UK.

"As a result they've begun to scale back lending to first-time buyers. If the Bank of England's Credit Conditions Survey is anything to go by - in which lenders reported a drop in mortgage credit for the first time since summer 2010 - they'll be forced to continue this trend into the early summer.

"Brighter times should return once the turmoil in the wholesale markets eases, and lending to first-time buyers should begin to pick up again."