e.surv attributed the fall in approvals to lenders retreating from the market to nurse balance sheets after a push to meet mid-year lending targets.
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.
Loan to values also fell to their lowest levels for six months as high LTV lending declined after recent boosts. Despite more high LTV products entering the market in the summer, 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 to 60.3%, also the lowest since February.
Lower income buyers were the hardest hit said the mortgage monitor. Despite higher LTV products entering the market, lending criteria tightened most at the lowest end of the property ladder. Approvals on homes below £250,000 fell to their lowest level this year.
Approvals on typical first-time property under £125,000 accounted for just 23% of all approvals in July, well below the highs of 30% seen in August 2008. LTVs fell fastest in the cheapest price brackets.
LTVs on typical first-time property were at the lowest for six months, meaning low income buyers required larger deposits to qualify for mortgage finance.
Purchase approvals increased marginally in the highest price brackets, because wealthier buyers have better access to mortgage finance said e.surv. As a result wealthier buyers continue to represent a disproportionate share of the market.
The regional breakdown in e.surv’s market monitor revealed an unusually poor month for London. Month-on-month purchase approvals fell across the board, apart from in Cumbria and the North East where they rose 3%.
London saw the greatest fall of 13%, following on from a strong June when approvals rose by 12%.
The decline in London activity included a fall in the number of lower income buyers. Although first-time buyer numbers remained static nationally, approvals for properties up to £250,000 accounted for only 40% of all approvals in July, down from 43% in June, highlighting the ongoing struggles of lower income buyers in the capital city.
This is reflected in the average LTV in London, which was 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 at e.surv, said: “Weak growth has handcuffed banks and given them almost no margin to increase mortgage lending. Given the economic backdrop, the uptick in lending seen in June seems to have been a flash in the pan.
“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.
“For those who can access mortgage finance, the good news is that fixed rate deals seem certain to remain particularly cheap, meaning now is a good time to lock in low repayments.
“The UK resembles an island of calm amid the international economic turmoil, which grea tnews for borrowers as it means repayment rates will remain low for the foreseeable future.”
David Brown, commercial director of LSL Property Services, said: “Until mortgage lenders regain confidence in the UK economy there’s no prospect house prices rising significantly.
"There’s plenty of demand for lower-cost homes, but 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.
"But 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."
