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Low rates and stagnant prices are boosting mortgage approvals

A prolonged period of low rates and stagnant house price growth has helped boost the number of mortgages approved to buyers with small deposits, typically those buying their first home, the latest mortgage trend report shows.

There were 66,059 residential mortgages approved during August 2019, down 1.9% month on month but marginally up compared to August 2018, and up by 0.1% year on year, according to the figures from the e.surv mortgage report.

While some parts of the market have slowed, the number of first time buyers has remained buoyant in the last 12 months. Low mortgage interest rates and more affordable house prices have also helped a greater number of first time buyers onto the ladder than previously, it says.

Correspondingly, small deposit borrowers grew their market share from 27.9% in July to 28.3% this month. This share is also ahead of the 27.7% recorded in May and June. It is not just first time buyers who have been able to take advantage of low mortgage rates.

Existing home owners have also used this opportunity to remortgage and find a cheaper deal. Mortgage lenders have been cutting rates and easing criteria in a bid to bring more existing customers to market.

‘While mortgage rates have ticked up in the last couple of years, more recently deals have started to become cheaper. Swap rates, which are used by lenders to help price mortgage rates, have fallen, with lenders passing on these lower funding costs to consumers. The outcome has been a new wave of cut-price deals, which have tempted homeowners and first time buyers to market,’ said Richard Sexton, director at e.surv.

The report also says that falling rates on offer in the mortgage market are partly down to lower swap rates, which are the rates at which banks can borrow funds over a long term. Although they are not the only factor used by banks to determine mortgage rates, they play a crucial role in how lenders price their loans.

Low rates helped the proportion of approvals given to large deposit borrowers stay at 26.6% of the overall market this month. Elsewhere, the percentage of small deposit customers grew from 27.9% to 28.3% between July and August. These changes meant that the mid-market shrank slightly, falling to 45.1%. On an absolute basis, the number of small deposit borrowers grew to 19,091 in August. This compares to the 18,350 recorded a month ago.

‘The rise in the number of small deposit customers shows the property market is starting to tilt in favour of first-time buyers and others unable to pull together large deposits. The number of mortgage schemes to help firs time buyers has also given then a timely boost,’ Sexton explained.

Yorkshire remained the best place to buy for people with small deposits, although other regions proved almost as attractive for these buyers. The region has topped the charts for seven of the eight months in 2019 so far, only being beaten by Northern Ireland in July.

This month 35.4% of all loans in Yorkshire were to those with small deposits. This is marginally ahead of the North West, where this figure is 34.5%, and Northern Ireland, were the ratio recorded was 33.2%. In all three regions over a third of lending went to borrowers with a loan to value (LTV) of more than 85%. The Midlands also offered fertile ground for small deposit buyers, with 31.2% of all loans going to those customers during the month of August.

Predictably, London borrowers continued to have the most difficult time, with just 19.4% of all loans in the capital being given to small deposit applicants. The city also had the highest proportion of loans approved to large deposit borrowers, recording 34.6% in August. This was ahead of the South East region, which saw 31% of loans to this market segment. Further behind were the Eastern England and South and South Wales regions, which both saw 29.3% of mortgages given to those with large amounts of cash.

‘While Yorkshire has continued to lead the way as the small deposit borrower hotspot, other regions are proving equally attractive to first time buyers. The North West and Northern Ireland have both proven to be excellent places for people to buy if they have little cash to spare. Those in London and the South East have less opportunity, but with prices slowing the most in these areas, there are still great chances for first time buyers to get onto the ladder,’ Sexton added.