Council of Mortgage Lenders survey shows dramatic decline in home loans as lending criteria tighten

The number of loans to first time buyers fell nearly 50% in July from the previous year, according to a survey by the Council of Mortgage Lenders.

Loans have declined to 17,300 as a result of tighter lending criteria, a fall of 48%.

The average amount of deposit needed has risen to levels not seen since the 1980s, with the average first time buyer placing of deposit of 15%, up from 13% in June.

The news comes as surveyors reported that the number of house purchases has fallen to record lows, with many surveyors reporting only one house sale a week, further hitting profits at housebuilders.

In July, first time buyers borrowed 3.24 times their income, a decrease from 3.33 in June and the lowest figure since July 2006.

Loans to home movers have also fallen to half of the number of loans in July 2007, dropping to 30,100. Home movers typically borrowed 68% value of their property, a drop of 4% since June 2008.

Overall there were 47,400 house purchase loans worth £7.1bn in July, representing a decline of more than 50% in value and volume from the same month last year. Average house purchase loans decreased in July to £120,170, down from £125,000 in the previous four months.

While total gross lending rose 5% to £24.7bn in July from £23.6bn in June; this is a decline of 28% since last year.

Tracker rate mortgages have also increased in popularity. The number of borrowers taking out tracker products increased to 28%, an increase of 7% since June 2008.

Michael Coogan, CML director general, said: “Tighter lending criteria have clearly made it more difficult for first-time buyers to enter the market. The stamp duty and shared equity measures announced by the government last week will be helpful to those first-time buyers looking to enter now, but many may be waiting for house prices to stabilise."

A spokesperson from the Housebuilders Federation said: “Getting liquidity back into the market is a priority. It is the most crucial issue in the housing downturn. We are hoping that as a result of the Crosby Review, the government will take action to assist mortgage liquidity.”