Euro crisis continues to cause problems for low deposit buyers

The continuing economic crisis in Europe has resulted in reduced lending in the residential housing market; especially for buyers with lower than average deposits. This group are usually first home owners and lending has reduced to its lowest level in nearly 12 months.

The April Mortgage Monitor, which tracks trends from chartered surveyors, found that loans were down for first home buyers 5% in March and just over 1% for April compared to last year. Fears of potential exposure to the on-going issues in Europe are believed to be behind the tight lending environment..

For the third month running, lending is down for low deposit buyers. The continued fall is fuelling concerns from the Bank of England that borrowing for first time buyers will continue to be difficult in the months ahead as banks look to reduce their exposure to more riskier clients.

The survey found that banks were continuing to lend to wealthier homeowners with more equity, thereby reducing banks’ exposure to the risk associated with lending to the lower end of the market. Although loans overall fell by 5% in the cheapest market sector, this contrasted with slight increases in lending to wealthier clients, lessening the overall reduction in lending to less than 2%.

The tougher lending environment was apparent as average deposit amounts increased to over 40%, the fourth month in a row where the loan to value (LTV) has decreased. This reinforces the view that low deposit loans will become harder to come by.

In the buy to let sector, lending is also down. The Council of Mortgage Lenders reports that borrowing in the sector is down 5% in the current quarter. Although it has recovered from the records lows of 2011, buy to let borrowing is struggling to return to the levels of 2007. However the overall share of the buy to let sector remains stable at just over 12% of all lending, a figure it has held since the beginning of 2011.