By Mike Edwards

Banks approved 6% fewer house purchase mortgages in September than in August, with 17,000 would-be first-time buyers left out in the cold.          The figure of 33,130 house purchase approvals was, however, 8% higher than in September last year though the comparison is with a very flat month from 2010. To compound this figures from the British Bankers Association show the number of remortgage approvals in September was also down on the August figure, by 8%, although about the same as in September 2010. There are some commentators who may suggest this lessening of remortgage money is not such a bad thing in terms of how over borrowed the country and individuals are.       

The BBA reports that growth in gross mortgage activity is being driven by the buy-to-let market and it is clear that a modest stimulus to gross mortgage lending is coming from the buy-to-let sector as rental yields continue to improve as we commented on recently. Indeed any recent improvement in gross lending can almost certainly be put down entirely to buy-to-let landlords taking advantage of the current rental market than a much-needed surge in lending to first-time buyers. Strict lending criteria and absurdly high deposit requirements are continuing to keep mortgage finance out of the hands of the average first-timer, and this is flooding the private rented sector with demand.    

The only problem on the horizon though for Landlords is given the additional supply and even allowing for increased rental demand, the likely sluggish future growth in the capital value of their properties may continue for some time. And if they decide to sell their portfolio what sort of market may they be selling into? Latest calculations indicate that each month there are 17,000 more frustrated buyers than before the downturn having to rely on rental accommodation because they are unable to buy. This is driving up competition for accommodation in both the flatshare sector and the wider rental market. For many investors, these conditions are too attractive to ignore, hence the growing investment in buy-to-let.         

While this continued buy-to-let interest may well alleviate some of the pressure on the current stock of rental homes, the supply will have to increase at a much faster rate to match growing demand and limit further rent rises. The CML says that in the 12 months to August an average of 15,800 first-time buyers a month secured mortgages, compared to an average of 33,100 a year between 2002 and 2007. These are staggering figures and do not bode well for the future of the housing market for several years to come. Without first time buyers the market is eventually bound to seize up – or see spectacular price falls. 

Whilst the mortgage market is doing its best to stagger on the ailing economy is entering a state of rigor mortis, and the crisis afflicting Europe makes any resurrection of growth look unlikely.   The temptation for lenders to pull further back from an unsure market and recoup equity over the winter is becoming overwhelming. Supply of credit remains painfully restricted, meaning there is almost no margin for lenders to grow their loan books, so they are being understandably cautious and focusing on targeting borrowers with big deposits.

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