30-year sales low but light at end of tunnel.

Byline: By Karen Wilson

A SEVERE shortage of mortgages has led to the lowest number of homes changing hands since 1978. Estate agents sold an average of just 15 properties each during the three months to the end of June, the lowest level since the Royal Institution of Chartered Surveyors began collecting data.

The group said the inability of many buyers to secure a mortgage had led to the collapse in transactions as the home loans market continued to shrink.

Newcastle-based financial adviser Alok Dhanda said the number of products available had shrunk from around 15,000 to just 1,800. He said lenders were trying to "clean up their books" by discouraging those with smaller deposits and only seeking out those with impeccable credit histories.

He said: "We're caught in a storm at the moment. The size of deposits required has increased massively and lenders are discriminating much more.

"A particular problem in the North East is that lots of people took out the Northern Rock 125% Together mortgages two to three years ago with a fixed rate of around 4.49%. Now they're stuck on a high SVR of 7.48% because they can't remortgage with anyone else.

"Gone are the days of self certification mortgages with no income checks. Even 95% loans are hard to come by.

"Really you need to find a 20% to 25% deposit to get a good rate. We are going back to the 1960s and 1970s when people had to save up a large deposit before buying a house."

Mr Dhanda said that fears of redundancy, uncertainty over interest rates going up and the general doom and gloom in the media was making buyers stay put.

For those who need to remortgage, Mr Dhanda said longer term fixes are more popular, however these are getting more expensive.

"It may sometimes be better to stick with the bank's SVR rather than re-mortgage when fees can be up to pounds 5,000," he added.

Craig Armstrong an independent financial advisor at Gordon Brown Associates, said: "The purchaser who bought two years ago with little or no deposit may find that when they come to re-mortgage, because of the current value of their property and the tightening of criteria and reduction in products available, they may have little or no choice other than to stay with their existing lender.

"There is, however, nothing wrong with this as some lenders are offering existing customers more attractive rates than can be sought elsewhere."

Deals are also being withdrawn with little or no notice, according to Mr Armstrong who said the average length of time a product was available had dropped from about six weeks to seven or 10 days.

However there is some light at the end of the tunnel, he claimed: "A number of the bigger lenders have recently looked to reduce their rates and slacken their criteria.

"We may also see in time the number of lenders reduce further as they look to merge and strengthen their position in the market place and in doing so make themselves more competitive, which with any luck will be passed on to customers."

Although Mr Dhanda predicts that the market will take around three years to recover, he still thinks it's an excellent time to buy.

"Just look back at the year 1990 when interest rates were 15%, people were in negative equity and everyone said the housing market would collapse," he said.

"Just a few years later prices were climbing. The same thing happened in 2000 and everyone was saying I wish I'd bought back then. If you buy today there are some great bargains to be had and you won't regret it in the long term."