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Mortgage Deposits Drop for First-Time Buyers


The size of mortgage deposit needed by first-time buyers to purchase a house has dropped below 20% for the first time since November 2008.  The Council of Mortgage Lenders (CML) said that the average first-time deposit was 19% for the month of July.

The better news for first-timers came against a background of a pick-up in mortgage lending to all home buyers.  The number of loans arranged by lenders rose by 5% from June to 49,500, which was also a 5% increase on the corresponding month in 2011.  However, these are still very much subdued levels when compared with the last housing boom; around half of the level recorded in 2007, before the banking crisis.

The director general of CML, Paul Smee, said: Julys figures show a gradual improvement in the market, with lending approaching the sort of levels we saw at the end of the stamp duty concession.  While overall market conditions remain tight, new initiatives such as Funding for Lending and NewBuy have the potential to help lending to continue to ease gradually.

The news of an increased level of mortgage activity for July coincided with the start of the Bank of Englands Funding for Lending scheme, which commenced at the beginning of August.  Under the scheme, lenders can borrow at preferential rates from the Bank, in exchange for securities, such as assets and business loans.  The banks are then incentivised to lend out that money in the form of business loans and mortgages, because the more they lend out, the more they can borrow at low rates from the Bank of England.  It will be a few months before the impact of the policy can be gauged though.

Although the CMLs figures are a step in the right direction for would-be first-time buyers, without the bank of mum and dad, that illusive property will remain out of reach for most. Looking at the average cited deposit of 19%, this would still mean a down-payment of over £30,000 on the average UK house price of £160,000.

Sources: bbc.co.uk, cml.org.uk, hm-treasury.gov.uk (image courtesy of reallymoving.com)