Mortgage lending to first time buyers for house purchase rose seven per cent in February, compared to the previous month, but lending conditions remain tight for those without a significant deposit.
The new figures, from the Council of Mortgage Lenders, show that house purchase lending to first time buyers climbed seven per cent compared to January, but was down 46 per cent on the number of loans for February 2008.
While the increase shows signs of life for the mortgage
market, many buyers continue to be frozen out of the market by tight lending criteria, unless they have a sizeable deposit.
First time buyers had a record average deposit of 25 per cent in February, the CML found, which remains out of reach for most buyers, including first time buyers, those returning to home ownership after renting, divorcees, and those receiving financial help from their family.
The CML's data also revealed a shift towards fixed rate mortgages
, as borrowers predict that interest rates will not fall any lower and could start to crawl back up after the Bank of England kept the base rate the same at 0.5 per cent this month.
It is widely expected that interest rates
have now bottomed out and will not fall further, which is reflected in the widening gap between the number of fixed rate deals taken out in February compared to tracker mortgages
The majority of new loans in February were fixed rate deals, accounting for 56 per cent of borrowing, up from 49 per cent in January, while tracker mortgages accounted for 31 per cent of new loans, down from 38 per cent in the previous month. CML
director general Michael Coogan remains cautious about the outlook in the UK mortgage market. Commenting on the figures, he said: "We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009".
Although more funding is being made available by some of the bigger banks, Mr Coogan believes that while this is "helpful", it "will not satisfy consumer borrowing demand on its own." More action from the Government is needed to increase lending from a wider range of lenders, he stressed.
The Government should use this month's Budget, Mr Coogan said, "to encourage a mortgage market where all types of lenders - banks, building societies and specialist lenders, and large and small businesses - are encouraged, and enabled, to commit more funds to the mortgage market if we are to enhance lending activity significantly." Get mortgage quotes and advice »
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