Mortgage demand tumbles as lenders' funding costs rise

Mortgage approvals fall to their lowest level since December 2010 has lenders tightened criteria again.

Mortgage approvals for home purchases fell sharply to 43,450 in March, their lowest level since December 2010, according to the latest Mortgage Monitor from e. surv chartered surveyors,

It blamed the fall on increasing funding costs which has forced banks to reduce lending to borrowers with small deposits.

There were 7pc fewer purchase approvals than in March last year: the first year-on-year fall since May 2011. The drop also represents an 11pc fall on the number of approvals in February.

It is the second successive month in which approvals have fallen, suggesting the market is beginning to regress after a period of growth.

The fall was driven largely by a sharp drop in lending to first time buyers. Loans for purchase of the cheapest property – typical first time buyer homes – fell 14pc in March to their lowest level for 15 months.

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There were only 10,428 loans approvals on property worth up to £125,000 in March, down from 12,247 in February.

First time buyers were the hardest hit as banks reduced the availability of high loan-to-value mortgages in response to increasing funding costs and tightening credit conditions.

Tighter criteria on high-loan-value mortgages meant lending to borrowers with a deposit of 15pc or under accounted for only 10pc all loans in March – well down on the three month average of 13pc – and falling from 12pc in February.

Richard Sexton, director of e. surv, said, “Up until now high-street mortgage lenders have been able to absorb steadily increasing costs, rather than passing them onto the consumer.

"The tactic boosted activity during last autumn and early part of this year, albeit artificially, and veiled a multitude of underlying weaknesses in the market. Now that the banks can no longer afford to take on extra costs, those weaknesses are beginning to come to bear once again.”

by the Telegraph