The Negative Effects of Restrictive Lending Revealed

Experts say that the policy of lenders to reserve the best mortgage deals for borrowers with large deposits is significantly hampering the recovery of the UK property market. According to the latest data presented by the Council of Mortgage Lenders (CML), the amount of the deposit, required by banks for first-time buyers has increased from 11% last year to 25% in March 2009. This means that those, not possessing a deposit that equals to 1 quarter of the property value (which is usually an average year salary), are not able to get their mortgage application approved. The problem also exists for those, who wish to move homes, however it is less severe. Home movers are only eligible to 70% loan-to-value ratio, which is down from 73% last year. In the 1990’s, this figure reached 75%. Of course, banks are still limited in funds, however, experts believe that rationing by the size of the deposit is a very unethical practice. Now only does it influence the ability of potential borrowers to qualify for loan, but it also affects the market supply. Rightmove even claimed that the lack of mortgages has caused so-called “equity immobility”. Some lenders become more aware of the negative effects that restricted lending has on the UK property market and start to offer better deals for those with smaller deposits. Unfortunately, the process is very slow and the problems, associated with limited finance, are still there. Although the increase in asking prices was reported for 4 successive months, the number of new homes that came onto the market in May 2009 is still very low (61,000 compared to 135,000 last year).