The Bank of England’s “Trends in Lending” report said that the fall is due to the reduction in high loan to value (LTV) products available on the market. The median LTV on new loans to first time buyers was 90% in 2007 but fell to 75% in 2009, with the estimated median deposit required rising from £13,000 to some £33,000.
Spreads on high LTV products — relative to standard reference rates such as Bank Rate or swap rates — have increased markedly since the start of the crisis and by significantly more than spreads on low LTV products, which the Bank said is also likely to have suppressed first time buyer demand for mortgages.
Despite this, demand from first time buyers improved in 2009 but lenders said this partly reflected pent-up demand from first time buyers coming back to the market, perhaps encouraged by lower house prices. They also noted that stamp duty relief had brought forward some planned purchases.
The number of loans advanced to first time buyers fell back in 2010 Q1, but remains higher than a year ago, with the recent fall reported to reflect mainly one-off factors, such as adverse weather and the removal of stamp duty relief at the end of 2009.
Responses to the Bank of England’s “Credit Conditions Survey” indicate that the supply of loans at higher LTV ratios increased in 2009 Q4 and 2010 Q1, though this has not yet materially affected the lending figures.
Research by the Council of Mortgage Lenders showed that in late 2009 around 85% of first time buyers aged under 30 had to rely on assistance, for example from parents, to raise the large deposits required, compared to 45% of first time buyers in 2006–07, and less than 10% in 1995.
The Bank said in recent discussions the major UK lenders, they expected lending to first time buyers to remain subdued over the next 12 months. Although the stamp duty relief on first time buyer property purchases valued up to £250,000 is expected to provide a modest boost to demand, most lenders said that deposit requirements would continue to constrain lending.
