Mortgage approvals for first time buyers fell to their lowest level in nine months in April, as banks reached a 'tipping point' on high loan-to-value (LTV) lending.
Loans on typical first time buyer properties (worth up to £125,000) fell to just 11,307 in April, 5% lower than in March, and 1.2% down on April last year, according to e.surv.
Banks blamed increasing mortgage funding costs and renewed fears over their exposure to the eurozone crisis for the reduction in lending.
It is the third successive month that lending on residential loans of up to £125,000 has fallen.
Buyers with small deposits were also hit, as banks reduced the availability of high LTV lending.
The number of loans granted to borrowers with a deposit of 15% or under fell to 5,309, well below the three-month average of 6,229.
In the overall market, loans for house purchases fell to 49,165 in April, a fall of 1.4% from March.
Banks lent disproportionately to wealthier buyers, reflecting their reduced appetite for lending to riskier borrowers.
Richard Sexton, business development director of e.surv, said the market has shown fighting spirit and had coped well with the challenging conditions at home and abroad.
"But we've reached a tipping point now," he added.
"Banks and building societies can't afford to sustain their current levels of high loan-to-value lending.
"In addition to their increased funding costs, they are also concerned about their exposure to the debt-riddled European countries, and the increasingly precarious state of borrower finances in the UK ."
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