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14 November 2008

15% drop in number of first-time buyer loans in September

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by Lin Freestone

15% drop in number of first-time buyer loans in September

Despite the government’s efforts to give momentum to the housing market, the number of mortgages taken out for house purchases has fallen to a record low. The Council of Mortgage Lenders’ (CML) figures for September reveal that just 35,000 new loans were approved during the month.

New loans for homebuyers in September were 15% lower than the figure for August, and more than 50% fewer than September 2007 when lenders approved 80,000 deals. In September, the average first-time buyer loan dropped to £104,500, down from £108,000 in August and well below the July 2007 price of £119,250.

The total number of first-time buyers for the three months to the end of September has fallen to 44,500. During the same period in 2001 when the market was at its peak, 164,400 loans were agreed with people on the first rung of the property ladder.

First time buyers have benefited from the decision by the government to raise the threshold for the payment of stamp duty to £175,000. A total of 51% of buyers were able to avoid payment of stamp duty in September, compared with 22% in September 2007.

CML figures show that remortgage approvals fell by 15% in September. In August 74,000 borrowers switched loans, but in September only 62,000 borrowers were able to make new agreements, reflecting the drive by lenders to reduce risk.

The CML has commented that although banks and building societies do want to support homeowners, they have limited funds available and are, quite reasonably, taking a prudent approach to risk. If the pricing and volume of interbank lending continues to improve, this should help the flow of mortgage lending.

Figures based on mortgage completions prepared by the Department of Communities and Local Government show that house prices lost 5.1% of their value during the year to the end of September.

The Halifax, which bases its figures on the less reliable measure of mortgage approvals, indicates that the price of an average home has declined by 15% during the year. This represents a loss in value of £30,000 for the average home.

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