Mortgage lending fell by 2% in September compared to August, and confidence in the housing market is set to fall further as a result of rising unemployment and rampant inflation, according to the Council of Mortgage Lenders (CML).
It said gross lending of £12.9bn in September 2011 was 4% higher than September 2010, when lending totalled £12.4bn, and the third quarter figure of £38.6bn was 15% up on the second quarter of 2011 (£33.5bn) and 2% higher than the third quarter of 2010 (£37.9bn).
However, mortgage lending remains substantially below the levels seen before the recession, and the CML's chief economist Bob Pannell said the small year-on-year September rise came against a backdrop of subdued levels of housing market activity.
He warned that worse was to come for the housing market: "Short-term economic prospects for the UK are not favourable. The housing market is very sensitive to wider household confidence, and this seems likely to weaken over the coming months in response to the latest spike in consumer prices and headline unemployment figures."
Richard Sexton, director of e.surv chartered surveyors, said that with inflation so high the year-on-year rise is "little to celebrate".
"The reality is mortgage lenders are actually retreating from high loan-to-value lending. Their confidence has been further dented by the eurozone economic crises and by the cracks beginning to appear in the government's growth strategy," he said.
"With the supply of credit so restricted, there is almost no scope for them to grow their loan books, so they are understandably playing it safe and focusing on targeting borrowers with big deposits. First-time buyer numbers have fallen to their lowest since November last year, which is a sure sign the mortgage market is struggling."
Howard Archer, chief economist at IHS Global Insight, said he expected house prices to fall by about 5% from their current levels by mid-2012.
The CML figures were published as housing minister Grant Shapps called on lenders to offer fixed mortgages of up to 30 years to encourage greater market stability. Shapps said he wanted consumers to see longer-term fixed mortgages as a "normal and sensible choice".
Longer-term fixed mortgages are far from a new idea. In 2003, the then chancellor Gordon Brown commissioned a report from Professor David Miles on why they were not more popular. The report concluded that part of the reason was that they were too expensive.
Nationwide building society launched a 25-year fixed-rate mortgage in 2007 in response to a call from the then chancellor Alistair Darling, but it was pulled from sale.
Spokeswoman Jackie Lawrence said: "There's definitely demand out there, which is why we've offered longer-term fixed mortgages in the past, but the key is getting the pricing right.
"Customers always look at cheaper two- and five-year deals and ask, 'How much more do I have to pay for a long-term fix?' So if we re-enter the market we have to ask can we be competitive?"
In the Bank of England's Trends in Lending report for October, figures show there was a surge in demand for buy-to-let mortgage loans in the third quarter of the year, stating: "Most major UK lenders reported that demand for buy-to-let lending continued to increase, partly reflecting rising rental yields."
The Bank also said it expected demand for mortgage loans for house purchases to be "broadly unchanged" in the next three months.
Comments
20 October 2011 1:30PM
If I write 'crashy crashy' here and get it out of the way, can we all ignore this article and carry on with our lives please?
20 October 2011 1:33PM
SO QE acheived exactly what?
Oh yes an increase in inflation, devaluation of our currency and diddly squat for businesses and homeowners and consumers. Time for Merv the swerve to go and he can take Osbourne with him.....
20 October 2011 1:41PM
Weaken?! It's already Mr Burns like. It'll continue it's slow march downwards for some time yet. Low interest rates keeping it from completely collapsing. While high inflation erodes real values. No one is really happy at the current situation which probably means it's the best compromise available.
20 October 2011 1:50PM
QE is keeping the house market up along with the general economy, but not enough.
Watch the slow decline of house prices continue over the next 5 years +
... Even eventually in West London, Ambon ...
20 October 2011 1:51PM
@madmonty
"SO QE acheived exactly what?"
A full on Depression with 25%+ unemployment and people on the breadline lasting 5+ years.
20 October 2011 1:52PM
"@madmonty
"SO QE acheived exactly what?"
A full on Depression with 25%+ unemployment and people on the breadline lasting 5+ years."
Ah, sorry, that should have read - "Preventing a full on Depression ..." etc
20 October 2011 1:57PM
In answer to Madmonty "SO QE acheived exactly what?"
QE acheived what it was designed to....... reduce government debt.
It reduces my savings via inflation and correspondingly reduces the government debt.
Transferring wealth from me to them is just another covert tax.
I hate governments no matter who is in power.
Are they thieving Liars or Lying thieves? It must be one or the other?
20 October 2011 3:17PM
Krashy krashy?
20 October 2011 3:38PM
QE just provides additional capital and liquidity to the banking sector.
The fact is that mortgage lending is down for two reasons:
1) The reduced loan to value available requiring significant deposits
2) In a falling market any incentive to "get on the ladder" is clearly reduced.
Just a shame that our economy has been so dependent on mortgage debt for the last thirty years. Just as Cameron tells us we should repay our debts it turns out that the economy is suffering because not enough people are taking on more debt.
Something to do with our debt-based money supply perhaps?
20 October 2011 3:40PM
It's all BS about high LTV loans being too risky. Basically the banks are frantically trying to stock up cash to meet the new banking guidelines for minimum cash to loans levels. They therefore don't want to lend at the moment since they need to stock up on cash.
House prices have very little effect on the deposits required, so falling house prices will not help the stimulate the market. Sellers/agents know this so this is way prices are pretty my stagnant.
For example. 25% deposit required. A 300k house needs 75k deposit. Drop the price 10% to 270k and the deposit required is still 67.5k. Same with a 100k house. Deposit only drops 2.5k for a 10% drop in price.
The problem is also the same for people who want to move. If you bought a house in the last 10yrs with a 10% or less deposit, you probably don't have 25% equity in your house. Hence you cannot get a new mortgage if you move.
House prices are not the major problem at the moment, it's the size of the deposits needed. Only huge falls in house prices (>30%) will fix this, but that will never / can never / won't be allowed to ever happen. Until the banks reach there required cash reserves (or whatever they are trying to achieve) and loans become available again we're stuck in this stagnation phase.
20 October 2011 3:47PM
.. and then what ?, whatever999. After the stagnation, or falls in fact in most areas. Boom ?
20 October 2011 3:55PM
Depends how long it takes. We've already experience real term falls in house prices of over 15%, taking inflation into account. If this continues for another 2 years we'll see over 25% fall in prices in real terms.
This is purely my opinion, but with all the pent up desire to own your own home in the UK that will be there when the credit lock out ends there is a good chance of a feeding frenzy in the short term, which may see some gains in house prices. Then longer term we'll see prices rise in relation to earnings. I hope we don't see a boom like that Blair caused ever again, but who knows.
20 October 2011 4:02PM
Mortgage approvals and transactions won't go up until prices come down. It really is as simple as that.
All this hot air about banks demanding excessive deposits is just that. With average household earnings stuck at less than £35K and sensible income multiples at maximum of 3.5x earnings the average buyer can only borrow £120K, and the only way to bridge the gap between £120K and £160K (average house price) is to demand a 25% deposit.
I'd love to see banks lending 95% again, but that can only happen when 95% of the average house price equals 3.5x average earnings. In the meantime there's only one direction for mortgage approvals, transaction levels....and house prices.
20 October 2011 4:12PM
Ah, whatever999, i too find comfort in writing things down to convince myself something can't/won't be allowed to happen. (a sensible correction here in your case) what are you so worried about?... much too lose?
Everyone who bought into the free money the only way is up paradigm should be made to suffer for their stupidity, more so btl.
Bit of a non article but certainly points to the fan being notched up a few degrees and the proverbial is certainly looking like its about to move toward it.... rapidly.
I've always thought the intervention over the last 4 years would come back and bite people and now it looks liek its about to happen at last.
Grant Shapps, 30 year mortgage!?......yeah right sounds like something a spiv would come out with, "you can spread your debt into 360 rather large monthy repayments". You know whats needed Grant you just havent got the stones to chirp up, i thought the goverment was supposed to work for ' the people', just shows how broken the system is.
20 October 2011 4:13PM
SWL forever!
20 October 2011 4:38PM
2% from what (already low) figure?
20 October 2011 4:39PM
Thanks for your concern willb42 :-) No nothing to lose really since I don't intend to sell any property for 20 years. Mortgage rates, now that would be a killer if they went crazy. But that's not going to happen in the next few years.
I personally don't get the rationale behind crashy, crashy. House prices have already fell over 15% in real terms just by staying flat. The market is just stuck because of the few loans available. We don't have 15% interest rates like in 1990. To me if you have a desirable property then I cannot see any downward pressure on its price. Even if you drop it people won't buy it because getting a mortgage is tough. You can't move very easily if you have <20% equity, so why bother. Buyers generally don't have mortgages pre-approved or haven;t sold their house. The process of selling is just too tiresome, people can't be bothered to even try and sell at the moment. I don't know a single person in the UK who is actively trying to sell their home at the moment. I know people who have moved in the last 3years and none of them seemed to lose out on what they paid for their houses originally. The only people who complain are the ones who haven't bought yet. Most of these are perpetual complainers about house prices, etc etc. The talk a good story about buying but never really put the effort in. Most of them couldn't even answer the question "Where exactly do you want to buy, what type of property do you want and how much do you think it'll cost?"
30 year mortgages are the norm in many countries. They are generally a fixed rate for the term so you know exactly what you'll be paying until its paid off. A great product is you ask me. A worry free mortgage.
20 October 2011 4:53PM
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20 October 2011 5:41PM
The Evils of B2L continue supported by the Govt, BoE and Treasury policy to prop up House Prices without any Regulation at all... in fact it is deliberate policy to support B2L with low rates so 250k should be invested in property speculation (with low very low CGTax) to protect asset prices... as deposit accts are so bad.
Oh and ensure Baby boomers like me have a big 4bedroom house and you under 40 yrs old live in a rabbit hutch or pay someone elses mortgage with sky high rents.. lucky ole baby boomers eh!
Why - GREED, to protect the vested interests of Speculators....... Foreign purchasers (no foreign property purchase tax as in other EU countires, why to push London house prices up. Good if your an MP with a 2nd home etc etc)
Asking prices are Falling.... download PropertyBee free SW and run in Firefox when accessing Rightmove or others sites and see all the changes, prices falling etc etc... dont believe the hype.
20 October 2011 5:48PM
One huge Scam, just look at Land Hoarding, unused Brown Field sites while developers want to get more Green belt..... Land is hoarded not taxed when not used, so it is a commodity to be abused, while over 1,000,000 empty homes exist in the UK and over 3,000,000 are taken out of supply by B2L. Mainly 1st time buyer homes to create a supply issue and keep prices up.
Regulate B2L to a Max of 2 propertys (no loop holes) and see prices fall..... why should a someone own 900 homes decimating local supply and say this is goodness! is a factual statement... tax unused brown filed sites (protect Green belt) fixes are simple... but you vote the wrong people into power if you want a roof over your head.
How can this happen, No Regulation - its a free for all.... to keep Vested Interests property assets high. Which is why B2L was invented in the 1st place.... hehehehehehe
20 October 2011 7:08PM
@GandalftheWhite
So how are you going to house the 3million households made homeless by "stopping the evil of BTL"?
I think we should have a whining tax. That would bring in billions in the UK.
20 October 2011 7:26PM
Land tax, land tax, land tax. In a country where land is in short supply, nobody should be hoarding it. It needs to be actually used.
20 October 2011 7:44PM
@whatever999
Assuming you're not one of these self-congratulating posters (I have my doubts) and these "people you know" that didn't "seem" to lose out actually bought at the height of the boom rather than a decade ago, then I hope you realise that using flimsy anecdotal evidence debases any shred of an argument you might have had.
Somewhere a statistician just fainted!
20 October 2011 7:52PM
Ahhh, a fellow short wave listener.
21 October 2011 9:35AM
I think Coldplay lost their musical direction a long time ago
21 October 2011 9:44AM
Of course
21 October 2011 10:18AM
LOL :-)
21 October 2011 10:27AM
I suppose that would depend if the sneeped BTL investor decides to burn down his house rather than sell it to a housing association or an FTB.
21 October 2011 12:51PM
Is it even worth reporting mortgage lending being down 2%? I mean are you expecting it to remain constant each month?!
21 October 2011 12:56PM
http://www.redpepper.org.uk/revenge-of-the-repossessed/
The whole article is worth a good sit down and a read but in particular ''Origins of the crisis''
- this link is in reference to some of the talk on the boom and bust...etc
enjoy...
peace!
21 October 2011 1:20PM
Nothing new in the article and the same old droning sound from the comments.
21 October 2011 2:45PM
Including yourself Ambon. x
21 October 2011 2:58PM
@Wheek.....spot on. He knows the game is up. ;-)
21 October 2011 5:28PM
Medium Sam
Land Tax, so land can be built on ???.
Not quite as simple as that. I have land that I would love to build a house on but the powers that decide say that its too far outside the confines of a village !!.
Do you think I should still be taxed ?
21 October 2011 5:36PM
Twice.
21 October 2011 11:42PM
How are you getting on trying to find your ideal cottage in Hampstead Heath / Clapham Common area Ambon?