House purchase lending hit a six-year high in October as lenders approve a growing number of loans to buyers with smaller deposits.
Lending for house purchases grew 32% in the last 12 months, while the percentage of loans to borrowers with a deposit of 15% or less grew 80%.
The number of high-LTV loans is now at its highest level since April 2008, according to the latest Mortgage Monitor from chartered surveyor e.surv.
House purchase lending increased for the eighth month in a row in October, with 68,996 loans in October. Approvals were up 3% on September, pushing figures to a new post-crisis record.
And they were 32% higher than one year ago, equal to 17,000 more approvals.
But the number of affordable properties is decreasing as house prices are pushed up by a supply shortage in some areas. There were just 13,799 loans on properties under £125,000, 6% lower than in September.
Richard Sexton, director of e.surv, said the mortgage market is bustling with activity. "Winter may be approaching, but that’s not dampening the spirits of potential homeowners, who are moving house, or buying into property in their droves.
"The sense of economic positivity, arising from rising house prices, falling unemployment and increased lender confidence is catching on like the common cold, and more people are looking to move.
"It’s a merry-weather market, with positive sentiment to match the season."
Help to Buy is needed more than ever, Sexton said, as rising house prices push more borrowers into the high-LTV bracket. "House prices have risen 4.3% since last October, according to LSL, but that hasn’t been matched by savings rates, or wage growth.
"The size of a deposit needed to access the best rates has risen – and many borrowers are now forced to take out mortgages with just a small deposit saved. It’s had a huge effect on first-time buyers, who haven’t seen their equity share increased.
“That’s where Help to Buy comes in. It provides a shortcut for buyers who lack the cash for chunky deposits to be backed by banks, by bolstering their deposits, so that they can access better rates.
"And it encourages lenders to support high LTV borrowers too. They have become less of a risk, because of the mortgage guarantee scheme, and are now more viable investments.”
Help to Buy and Funding for Lending are encouraging banks to slash rates and boost lending, and the beginning of 2014 should see lending reach a fresh high.
Approvals still fall far short of pre-2008, when they were consistently over the 100,000 mark, but are increasing at a far more sustainable rate, he said.
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