Surge in mortgage lending in the UK but experts say wait and see
22-06-2012
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Gross mortgage lending in May was an estimated £12.2 billion, a 24% rise from £9.9 billion in April and a 13% rise from May 2011 when it was £10.8 billion, the latest CML figures published today (Thursday 21 June) show. ‘The government has recently announced a number of measures to counter the adverse effects from the Eurozone crisis. It clearly senses an opportunity to bolster home ownership and housing activity, and we look forward to hearing more details about the funding for lending initiative which seeks to deliver this,’ said CML chief economist Bob Pannell.
‘Meanwhile, mortgage lending continues to seesaw, albeit against a broadly flat market. Unfortunately, a number of one off factors, such as the Diamond Jubilee and the Olympics, are set to distort market indicators over the coming months, and it may be the autumn before we can more accurately gauge the state of the market,’ he explained. The scale of the surge may not be what it seems, according to David Brown, commercial director of LSL Property Services, as the drop in lending in April following the ending of stamp duty benefits for first time buyers has had an effect. ‘Lending saw a somewhat of a resurgence in May after it fell off a cliff in the aftermath of the stampede to beat the stamp duty deadline, although the scale of the increase in May could have as much to do with the magnitude of the drop in lending in April as with a sudden improvement in lending conditions,’ he said.
‘The eurozone crisis has been the biggest obstacle for lenders in recent months, pushing up the cost of raising funds for lending. However, if the Bank of England’s new scheme to provide cheap liquidity to banks proves a success, banks could well be freed up to boost their commitment to lending. The number of first time buyers able each get on to the property ladder has been bumping along the bottom since the first crunch, boosting tenant competition, but if the new funding for lending scheme is a success, this could well improve in the second half of the year,’ he added. The big monthly increase in lending disguises that the mortgage market is struggling to get into fifth gear, according to Richard Sexton, director of e.surv chartered surveyors.
‘April was such a weak month that May was always going to see a big jump in lending. Banks still have their hands tied by increasing funding costs and capital buffer rules imposed by regulators. And they are terrified of the seismic impact a collapse in the eurozone could have on their balance sheets,’ he said. He believes that the fact that banks are really struggling is significant. ‘Banks have shipped their increased costs onto consumers like a hot potato. As ever, first time buyers and lower income borrowers are bearing the brunt of the banks’ problems.
Lending to borrowers with small deposits has fallen for four out of the last five months,’ he explained. ‘This lack of mortgages for first time buyers has left great swathes of them stuck in rented accommodation, which is a black hole for personal finances. However, in the absence of a euro disaster, the recent news on government support for Banks and the decision to allow them to release some capital reserves good give lenders the confidence to relax terms over the second half of 2012,’ he added. Paul Hunt, managing director of Phoebus Software, said that annual growth figures will be the ones to watch.
‘Many will hail the massive rise in lending on the month as a sign of returning positivity among mortgage lenders and it’s certainly a relief that stamp duty doesn’t appear to have put an ongoing brake on the market but it’s the annual growth in lending that’s really significant,’ he pointed out. ‘In a year in which a European nation has partially defaulted and appeared set to leave the eurozone altogether and in which the UK slid back into recession, that mortgage lenders have managed to achieve a substantial increase in their activity is testament to the innovative and proactive approach they have taken. In spite of the absence of economic growth and amid growing fiscal hurdles in the property market, the lending industry has found a way to sustainably and significantly boost activity in the property market,’ he added.
