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Jump in gross lending signals FLS success

Robyn Hall

November 20, 2012

This month’s gross lending figures have increased by 4% on the same month in 2011 and if the estimate is accurate October will have produced the highest level of gross lending so far this year.

Ashley Brown, director of independent mortgage broker Moneysprite, said the 4% jump was an encouraging sign following months of stagnation.

He said: “It’s early days but the Bank of England’s Funding for Lending Scheme is clearly starting to have an impact and is slowly encouraging lenders to reduce rates on their high loan to value products.

“Supply is slowly improving and the debate is now rightly focusing on demand. With unemployment continuing to fall and the country officially out of recession there are reasons to be positive.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, agreed the FLS would now start to creep up the loan to value scale.

He said: “Money market rates are falling as the Funding for Lending scheme continues to have an impact on pricing and availability of mortgages.

“This bodes well for next year as we expect this easing to continue. As lenders saturate the low loan to value market with a plethora of rock-bottom rates they will be forced to turn to the higher loan to value bracket if they are going to do any significant levels of business

“This will mean cheaper rates and more choice for first-time buyers in particular.”

Harris added: “We are already starting to see one or two lenders, notably the Co-operative Bank with its 2-year fix pegged at 3.99% for those with a 10% deposit, offer cheaper rates at high LTVs.”

David Whittaker, managing director of Mortgages for Business, said: “The mortgage market is taking steps in the right direction and the funding for lending scheme is helping ease some of the squeeze on banks’ mortgage funds, but it’s certainly not a magic cure for the mortgage market.

“Funding for Lending is focussing more on low LTV borrowers than first time buyers, and so is acting more like a walking stick for someone with a dodgy knee – helpful in the short-term, but take it away and the patient will struggle to walk.

“If the owner-occupier market is to start moving freely again, lenders’ need to significantly increase their high LTV lending.

“As things stand, that looks about as likely as UKIP becoming a pro-European party, thanks mainly to tough capital adequacy requirements imposed on banks and weak economic growth. It’s good news for buy to let investors though, a combination of low property prices and high rents has pushed gross yields up over the last 12 months.

“As a result buy to let activity is likely to remain high for the foreseeable future given the high returns on offer across a range of different property types.”

Mark Blackwell, managing director of xit2, added: “It’s not time to get out the bunting just yet. The Funding for Lending Scheme has bolstered lenders’ balance sheets with cheaper funds, which has been the catalyst behind the improvement in lending over the last two months. But it’s mainly to low LTV borrowers, rather than the traditional beating heart of the property market: first-time buyers.

“Lenders are still relatively risk-shy as the market continues to reposition itself. Gross lending is still only 43% of its pre-2008 peak – while the mortgage market has retained some of its post-crisis weaknesses like stringent capital requirements, tight funding conditions in the money markets, and a chronic lack of confidence.

“Rises in standard variable rates are on the horizon, after low interest rates themselves have been relatively impotent in helping stimulate growth. Interest rates and inflation can’t stay low for long, while any sustained improvement in the jobs market will require a sustained period of economic growth, which looks some way off yet.

“The rational response to these figures is to temper any hasty optimism. Lenders need effective mechanisms for assessing risk, and should make sure they have the cold, hard information to hand so they can assess which of their customers might be in trouble.”

Duncan Kreeger, chairman of West One Loans, said: “This news might bring some temporary warmth to the chilly bones of the mortgage market, but it won’t do much to break the cold war between borrowers and the money markets. Borrowers are being starved of finance by lenders, who are having their funding lines squeezed by the financial markets. It means high-street lenders still aren’t doing their job of lending to the people who really need it.

“The fact the mortgage market is cheering these figures confirms just how far away it is from any sort of recovery. They are very modest by historic standards – lending is still well below half its pre-crisis peak.

“The mainstream mortgage market is following the same miserable zig-zag as the wider economy. High street lenders are struggling badly under the weight of tough capital requirements and a reliance on expensive funds from the money markets. Their funding models simply can’t cope. The fact they are now reliant on artificial stimuli like the Funding for Lending scheme only confirms how chronically weak the mortgage market is. That’s why alternative forms of finance are becoming more valuable to society.

“The bridging industry is growing at double digit rates, while people are flooding to other intermediaries for more day-to-day sums. At West One we’ve achieved £120 million in loan redemptions – and growing.

“The future of mainstream finance will follow this more imaginative and more specialised path.”


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