Why tight credit could be good for first-time buyers

In a few years, first-time buyers may be heartily grateful to banks for their reluctance to lend them any money now.

It is getting easy to find statistics that tell you the housing market is in trouble. But none is quite as convincing as this one: according to the Financial Services Authority, the proportion of new lending done at a loan-to-value of more than 90% now accounts for just over 2% of the total.

That represents a tiny rise from the first quarter of the year (1.6%), but a massive fall from its levels at the peak of the bubble back in mid 2007. Then, very high loan-to-value lending accounted for more like 15% of total mortgage lending.

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This matters. Why? Because it is first-time buyers who take out high loan-to-value mortgages. So these numbers tell us that despite the fact that mortgage lenders are ostensibly loosening up their product ranges, they still aren't lending much to new entrants to the mortgage market. A report from the Council of Mortgage Lenders backed this up earlier in the week: it seems that, while the overall number of new mortgages written rose very slightly in July, the number that went to first time buyers fell by 2%.

That should come as no great surprise given that the vast majority of mortgages remain reserved for those with a 30-40% deposit and that first time buyers are currently being asked for an average 24% deposit if they want a loan (that's up from 21% back in May, so things aren't exactly improving).

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However, miserable as this all sounds, we wonder if, in a few years, would-be first-time buyers won't be heartily grateful to the mortgage providers for their reluctance to lend them any money. The absence of young buyers from the market may be part of the reason it has entered its latest swoon (if there is no last link in a housing chain, there is no chain), but it is far from the only one: richer buyers can't get finance particularly easily anymore either, supply has been rising fast and the spectre of the huge spending cuts to come isn't doing much for employment or confidence.

How much better then for first-time buyers to rent for a few years -a decade even -and to enter the market for their dream home when prices have normalised a little and when they are better able to afford it.

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