Two-thirds of estate agents say there are fewer house buyers since the start of tougher mortgage checks last year

  • Mortgage lending down on last year despite strong up-turn in March 
  • Rules stopping 'second-steppers' moving up the ladder
  • Now takes 50 days to receive a mortgage offer 

Two-thirds of estate agents say there a fewer buyers looking for homes than a year ago as a result of tougher mortgage lending rules.

The National Association of Estate Agents said 65 per cent of its members were reporting a fall in buyer numbers since the mortgage market review reforms were introduced, a year ago on Sunday.

The fall in demand has contributing to a weakening of the housing market versus a year ago when agents in property hot-spots were reporting sealed bids and open house viewings that drove sale prices higher.

Buyer beware: Appetite for property is string but buyers are failing mortgage checks

Buyer beware: Appetite for property is string but buyers are failing mortgage checks

The MMR rules now require lenders to conduct tougher checks on mortgage applicants including whether they could afford their repayments if, at any stage in the first five years of the loan, the Bank of England base rate were to rise by 3 percentage points. This would take the typical mortgage rate to near 7 per cent.

The effect of the rules has been to slow the mortgage process but there are now also signs they have led to an overall reduction in the the numbers being granted a mortgage.

Mark Hayward, managing director of the National Association of Estate Agents, said: 'We can now really see the substantial effects [MMR] has had on the property market. The new rules, which introduced stricter guidelines for lenders, has led to two thirds of NAEA estate agents reporting a decrease in the number of buyers.

'A drop in the number of buyers is the direct result of a slow-down in acceptance of mortgages, with it now taking an average of 50 days to receive a mortgage offer. This increases the risk that sales won’t go through and puts unnecessary pressure on any chain transactions.'

He added that the number of buyers still outstripped the number of properties for sale and that sellers were still achieving bids for their homes quickly. However, more buyers were then having to pull out of purchases because MMR checks made after the initial mortgage offer in principle were flagging up problems with their applications.

The rules were also limiting the number of homes being put up for sale as existing owners became trapped in their current mortgage deal.

Mr Hayward said: 'The rules are hitting second-steppers. Those who bought in 2006 or 2007 and who need to move up the ladder, perhaps after the birth of a child, are finding they cannot get a new mortgage under the new rules.'

 'There was an improvement through last year as lenders got used to the rules, but this seems to have got worse again since the start of this year', he added.  

The impact of the new rules has also been noted at the Bank of England. In minutes from the latest meeting of the Bank's monetary policy committee, released yesterday, members noted that the MMR had 'had a more durable effect on borrower and lender behaviour than had first been anticipated'.

The Bank of England has introduced its own curbs on mortgage lending during the past year. It now requires lenders to limit mortgages amounting to more than four and a half times a borrower's income to just 15 per cent of new loans.

Separate data on lending from the Bank of England today showed that mortgages are getting cheaper. 

The Bank reported that effective rate on new mortgages - what borrowers actually pay - fell in the three months to February, continuing the decline since late 2014.

Quoted fixed mortgage rates, which are indicators of the rate offered to borrowers, fell in the first quarter of 2015 compared to the previous quarter. There were falls in rates on 75 per cent loan to value fixed-rate mortgages and even sharper falls on 95 per cent LTV mortgages. 

Cheaper loans: Effective interest rates on new fixed-rate and floating-rate mortgages(

Cheaper loans: Effective interest rates on new fixed-rate and floating-rate mortgages(

Despite falls in loan prices, mortgage lending has been lower in the first part of 2015 than in the same period of 2014, before the MMR rules were introduced.

The Council of Mortgage Lenders today estimated gross mortgage lending for the first quarter of this year was £44.9billion - 12 per cent lower that the last three months of 2014, and 3 per cent lower than the first quarter of 2014.

However, there has been a marked improvement in lending in the past month, helped by the property market's traditional spring bounce. Gross mortgage lending reached £16.5billion in March, 21 per cent higher than February and 7 per cent higher than March last year.

The CML added: 'This might seem like a significant jump, but after stripping out seasonal factors and accounting for trading days, the underlying trend is one of a gentle rise.'

The CML's chief economist Bob Pannell said that an overhaul of stamp duty in December last year should help mortgage lending to continue to strengthen in the coming months. The change to stamp duty has made the tax cheaper for the majority of home buyers who are liable to pay it.

He said: 'The underlying lending picture is stabilising. Sentiment and activity are showing early signs of improvement, and should be further supported by the effects of stamp duty reform. We expect to see lending strengthen over the next few months, albeit from a relatively sluggish start in 2015.' 

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