It's simple: if the banks don't lend, the homes won't get built

The once-busy property sector that sold foreign holiday homes to United Kingdom buyers has had to cope with the credit crunch and the sterling's slide over the past new year. Now there is a new problem – a second wave of mortgage shortages.

The mortgage market contracted well over a year ago when the crunch took hold but now mortgage brokers trying to help would-be buyers have reported new restrictions.

Conti Financial Services, which is one of the largest mortgage brokers in this sector in the UK, says it used to be able to secure 80 per cent loan-to-value (LTV) mortgages for holiday homes in Spain. That has now fallen to a maximum 60 per cent LTV, and if a buyer wants an apartment on a large new-build scheme it may be impossible to get funding at all.

Mortgage availability for purchasing in Dubai has plummeted, too. "We used to get 70 per cent LTV on any property but now it's 50 per cent maximum on villas and houses. You can't get a mortgage on a flat there," said a Conti spokeswoman.

It is a similar story on US properties; prospective UK buyers are finding mortgages hard to get, with 50 per cent maximum LTV.

In recent years typical UK buyers have relied little on mortgages for purchases of overseas homes, as they have instead taken equity from their principal UK properties. But now that equity is diminished after 15 months of price falls, and lenders are far less willing to allow home owners to remortgage anyway.

Therefore, like the domestic UK housing scene, the market in buying overseas homes depends heavily on improved liquidity.

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