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.
There were 7% fewer purchase approvals than in March last year – the first year-on-year fall since May 2011.
The drop also represents an 11% 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 14% in March to their lowest level for 15 months.
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 15% or under accounted for only 10% all loans in March – well down on the three month average of 13% – and falling from 12% in February.
March was the fourth consecutive month in which lending to borrowers with small deposits has declined. There were only 4,432 loans to buyers with a deposit of 15% or under, compared to 5,829 in February – a fall of almost a quarter.
The monitor shows banks lent disproportionately more to wealthier borrowers, reflecting their reduced appetite for lending to higher risk borrowers with small deposits. Despite the steep fall in overall approvals, the number of loans for purchase of homes worth over £350,000 held steady and even increased in some price brackets.
Lending to borrowers with large deposits was its highest since January 2011, with one-third of all loans for home purchases in March granted to buyers with a deposit of over 40% – indicating the disproportionate influence of wealthier buyers on the market.
Richard Sexton, director of e.surv, says: “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.
“A challenging period lies ahead – particularly for buyers on low incomes and with small deposits.”