Borrowers take on more debt to get on property ladder

The Momentum UK Team 19 November 2013

The average homebuyer borrowed 72.2% of their purchase price in October - the highest figure since 2009 - according to new figures

In the latest sign of recovery in the property market, latest figures indicate that buyers are taking out bigger and bigger mortgages in order to get onto the property ladder, as new products become available to those with smaller deposits.

The average loan to value (LTV) on properties purchased in October was 72.2% according to figures from the Mortgage Advice Bureau, a broker. This is 3.3% higher than september’s figure of 68.9%, and is the highest reading since records began in January 2009.

One of the major contributing factors is thought to be the government’s Help to Buy scheme, which offers taxpayer backed security to lenders offering mortgages to first time buyers with smaller deposits. Although only RBS and Lloyds Banking Group are participating in the scheme, other lenders have also started to offer more deals to those with deposits of only 5-10%. It appears that these factors are driving up demand: last month applications to buy homes were up 59% from October 2012.

The market appears to be opening up to more buyers than before; the average buyer salary fell to a six month low of £38,887 in October. This news has raised concern from those who worry about the affordability of 90-95% mortgages, but optimism in other quarters. Brian Murphy, head of lending at the Mortgage Advice Bureau, said:

“The Help to Buy mortgage guarantee is still in its infancy and it’s reasonable to assume the best deals for consumers are yet to come. What these figures show is that the scheme’s galvanising effects are not limited to lenders who are directly participating at this stage.

“Spreading positivity about property purchases has visibly increased demand and spurred lenders across the market into bidding to win over consumers. It is an encouraging sign that we are already seeing a change in the typical profile of mortgage applicants.”

Since the high profile launch of the Help to Buy scheme, some critics have raised concerns that it may cause an artificial housing bubble and that such high levels of debt are unsustainable.