NEWS
Mortgage lending falls again in UK as flagship Funding for Lending fails to help
19-10-2012
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It is also down 15% on the same month last year, the figures from the Council of Mortgage Lenders published today (Thursday 18 October) show.
But on a quarterly basis lending is up. Gross lending for the third quarter of 2012 was therefore an estimated £37.3 billion, an 8% increase from the second quarter of the year but still down 5% compared with the third quarter of 2011.
CML chief economist Bob Pannell suggested that it was due to the Olympic Games in London which slowed down interest in the property market. ‘There have been hints of demand softening over recent months, but monthly patterns may have been distorted by the Olympics. House purchase demand failed to lift significantly in the third quarter, despite much better mortgage availability. Remortgage activity continued to languish, in contrast to relatively strong levels a year ago,’ he explained.
Richard Sexton, director of e.surv chartered surveyors, said that it is clear that the government’s Funding for Lending scheme has not yet kicked in. ‘The mortgage market is at a low ebb. High loan to value lending accounted for less than one in ten of all house purchase loans in September, and there were 10% fewer home loans than this time last year,’ he pointed out.
‘Funding for Lending has yet to jumpstart first time buyer lending which is historically the beating heart of the housing market. Even though the scheme has flooded banks’ balance sheets with cheaper funds, it hasn’t been enough to offset chronic macroeconomic constraints on lending,’ he said.
‘Banks are required to hold ludicrously high capital adequacy buffers, which is preventing them from increasing lending with any conviction. And the lack of confidence the money markets have in UK economic growth is leaching away mortgage funds from our banks. Lenders have kept credit scoring tight as a result, which has proved a big stumbling block, particularly for first time buyer lending,’ explained Sexton.
He also said that there is hope that Funding for Lending will still kick-in. ‘Think of it as nurofen for a headache. The mortgage market has taken its medicine, but once you take a pill you don’t always feel immediate relief, it can take some time to work,’ he added.
Duncan Kreeger, chairman of West One Loans, is concerned that the mortgage market is clearly in a lot of trouble and today’s figures show the situation is getting worse a traditional credit is failing and even the Funding for Lending scheme is having little effect.
‘Lending is as weak as it’s been for 18 months. Inflexible rules around capital adequacy and income ratios are paralysing the market, and tight credit scoring is freezing borrowers out of the market,’ he said.
He mentioned the report published this week from Ernst & Young which announced that UK housing and mortgages would power a full scale economic recovery next year. ‘That looks like wishful thinking set against this news. The mainstream mortgage market won’t escape from this hole it’s in any time soon,’ he said.
‘This is exactly why we’re seeing plenty of buy to let investors and developers turn to alternative forms of finance in the absence of credit from the high street. With traditional mortgage lending struggling so badly, alternative forms of finance like bridging are becoming increasingly important to the lending mix,’ he added.
