May 31, 2011 / 11:20 AM / 9 years ago

Banks, homebuilders in talks to boost home loans

LONDON (Reuters) - Banks are in talks with housebuilders to find ways of helping homebuyers overcome tight lending conditions to get a foothold on the property ladder, the Council of Mortgage Lenders said on Tuesday.

A woman walks past a branch of Lloyds, in London May 5, 2011. REUTERS/Luke MacGregor

Banks have tightened up their lending criteria in the wake of the credit crunch, partly due to more stringent regulations which require them to hold more capital on their books. As a result, many first-time buyers are now required to stump up bigger cash deposits in order to secure a home loan, which has dented demand for mortgages and led to a sharp slowdown in the housing market.

“Lenders and housebuilders are indeed talking to each other about what, if any, steps can be taken to unlock sustainable lending at higher loan-to-value ratios,” a CML spokeswoman told Reuters.

One way that housebuilders can help to ease the flow of lending is by injecting equity into a fund, which can be used as a guarantee for mortgages and would reduce the amount of cash deposit that must be put down by the homebuyer.

“We need to find ways of increasing the amount lenders are lending in a way that they’re happy with and the discussions are all about how housebuilders can help lenders do that,” said a spokesman for the Home Builders Federation.

Official data showed banks approved just over 47,000 home loans in March — around half their long-term average before the credit crisis. And two-thirds of people who don’t own a home reckon they will never do so, according to a survey by mortgage lender Halifax.

The government has also tried to alleviate the financing problems faced by prospective buyers, and announced in the March Budget a 250 million pound scheme to help 10,000 first-time buyers purchase a new-build property.

It is also looking into offering stamp duty tax relief for first-time buyers and plans to announce the results of its review on this later in the year.

Some experts are in favour of capping mortgage loan-to-value ratios at 90 percent. The CML stressed that it did not want a return to pre-crisis levels of lending, when some banks were offering loans worth more than 100 percent of the value of a home.

“We’re not trying to get to a market where there’s a particular incentive to borrow at high loan-to-value levels ... What people are concerned about in terms of the current market conditions, is that the risk aversion (of lenders) has gone too far and it’s very difficult, structurally, to move away from that, because of tighter regulations,” the spokeswoman added.

Some banks are already trying to find ways to help first-time buyers.

Lloyds Banking Group — Britain’s biggest mortgage provider — said it had some 95 percent mortgage products available, which require customers to put down only a 5 percent deposit, if they have the support of their family, friends or a local authority.

“We are fully supportive of innovation in this area,” said a Lloyds spokeswoman.

Additional reporting by Lorraine Turner and Sudip Kar-Gupta; Editing by Toby Chopra

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