Mortgage lending jumps 16pc

Robyn Hall

July 20, 2011

The gross mortgage lending figure for June 2011 was 3% lower than June 2010 however it was the highest monthly total since July last year which was £13.3 billion.

Gross lending for the second quarter of 2011 was therefore an estimated £33.5 billion, an 11% increase from the first three months of the year and a 3% decrease from the second quarter of 2010.

Lending in the first half of 2011 totalled £63.7 billion, less than 0.01% below the £64.1 billion lent in the first half of 2010.

Bob Pannell, chief economist at the CML, said: “The UK economy continues to experience disappointing economic growth, strong consumer price pressures, falling disposable incomes and an uncertain jobs market.

“This backdrop weighs negatively on purchase decisions relating to home ownership. By contrast, landlord activity appears to have picked up recently and, with evidence of strong rental demand, this should help to underpin activity over the coming months.

“UK households have made progress in bringing down debt burdens over the past year or so, but this largely stems from the restricted levels of new mortgage lending, unsecured write-offs and nominal income growth. Households in aggregate are not repaying their mortgage debt more quickly.

“Recent emotive headlines on repossession prospects appear overplayed, given that the state of our economy does not warrant large interest rate rises for the foreseeable future. But we do expect to see moderately higher arrears and possessions through the second half and into 2012, as we have previously forecast.”

Brian Murphy, head of lending at independent mortgage broker, Mortgage Advice Bureau, said: “The mortgage market is still down but it is by no means out, as the June figures clearly demonstrate.

“The backlog of people applying for mortgages during May clearly bolstered the number of mortgage advances in June.

“As the CML rightly observes, the amateur landlord, drawn by the strength of the rentals market, has returned and this will add to activity levels moving forward.

“But the caution of the consumer and the still stringent lending criteria that apply will continue to exert pressure on the mortgage market in at least the short term.”

Richard Sexton, business development director of e.surv, added: “At the moment, we can only consider this as a flash in the pan. June’s figures reflect a concerted effort from lenders to meet their mid-year lending targets, little more. It would be presumptuous to view this as a grand sign that lenders have a greater capacity to increase lending in the long term.

“In reality, lenders are stuck between a rock and a hard pace. On the one hand they have a commitment to improve their capital, while on the other they are under political pressure to increase lending. These competing views are totally irreconcilable. If anything, the next few months are likely to see suppressed activity while lenders recoup equity and nurse balance sheets that still have to juggle a variety of risks. There is also real fear of a domino effect following the inevitable Greek default, with many UK lenders exposed to Western European Banks, who in turn are exposed to PIG countries.”

David Whittaker, managing director at Mortgages for Business, said: “The buy-to-let market has been key to underpinning lending activity over the first half of 2011. Professional landlords and investors have taken advantage of stagnant prices, rising rents and substantial yields and this has pushed activity up.

“Only when owner occupiers are confident of economic conditions and lenders are willing to loosen their criteria further are we to see a substantial recovery in the overall market. But until that moment comes, investors will continue to make hay while the sun shines.”

Paul Hunt, managing director of Phoebus Software said: “Having weathered a tough year, there are signs that lenders’ liquidity is improving and as a result their confidence has begun to grow. Lenders are pricing their products increasingly competitively, giving borrowers the chance to maximise the benefits of the almost certain continuation of low rates for the rest of this year.

“This has improved mortgage affordability and means lenders can put their hands in their pockets knowing the rates they offer are unlikely to break the bank for borrowers – even though economic conditions remain uncertain. This isn’t yet enough to prevent the UK’s housing market from stagnating, but it’s a very encouraging sign indeed”.

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