According to its mortgage monitor, 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.

Despite more high LTV products entering the market this summer, e.surv said 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 8.5% of all approvals in July, down from 9.4% in June. The average LTV fell from 61% to 60.3%, the lowest since February.

According to the mortgage monitor, lower income buyers were the hardest hit. Despite the rise in higher LTV products, lending criteria tightened most at the lowest end of the property ladder. Approvals on typical first-time buyer property under £125,000 accounted for just 23% of all approvals in July, below the high of 30% seen in August 2008.

In London, first-time buyer numbers remained static and approvals for properties up to £250,000 accounted for 40% of all approvals in July, down from 43% in June. The average LTV in London stood at 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 that weak growth has handcuffed banks and given them almost no margin to increase mortgage lending.

“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.”

David Brown, commercial director of LSL Property Services, added that while there’s plenty of demand for lower-cost homes, 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.

“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.”