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Net mortgage lending grows 0.5pc

Robyn Hall

October 23, 2012

Gross mortgage lending of £7.3bn in September was lower than the recent monthly average and reflected continued low levels of activity in the housing market.

Historically, the difference between gross lending and capital repayment produced significant net lending each month. However, with declining levels of gross lending and high capital repayments, resulting from low interest rates, net lending has reduced.

Mortgage approvals for house purchase showed a small upturn from August, but in September were still 6% lower than a year ago.

The average house purchase approval stands at £155,000 but due to expanded reporting within one banking group since the turn of the year, this cannot be directly compared with earlier trend figures.

Numbers of remortgaging approvals were some 15% lower than in September 2011 and approvals for other secured lending were 23% lower.

The outstanding level of unsecured borrowing from the banks has contracted by 2.5% over the year to September. Within that, credit card lending rose by 4.8%, so it is a contraction of 7.7% in other loans and advances which drives the overall decline.

New spending on credit cards of £7.3bn showed an upturn compared with the recent monthly average and was in line with the stronger retail sales for September.

Consumer demand for high street bank loans and overdrafts remains weak and the repayment of unsecured personal loans continues to outweigh new lending. Individuals’ outstanding loan amounts are now almost half of what they were at their peak in late 2007/early 2008.

Borrowing levels for companies continue to contract as firms seek to reduce debt while waiting for better or more certain trading conditions. Over time, the Funding for Lending Scheme will improve lending conditions, though it is too early to measure any impact yet.

BBA statistics director David Dooks said: “The continuing economic uncertainties both in the UK and in the Euro area are having a dampening effect on activity within firms and households.

“Households are reducing borrowing requirements and have no appetite to take on more/new debt. Where they can individuals are putting money aside for household expenditure. Firms are holding back on borrowing for investment until trade prospects improve.”

David Brown, commercial director of LSL Property Services, said: “A slight seasonal rise in lending in September can’t mask the underlying weakness in the overall mortgage market.

“Lending is still below the level of a year ago, and the reduced number of would-be buyers able to secure the finance they need is stymieing the national housing market.

“With Funding For Lending only officially launched in August, September was too soon to judge its effect on the number of house purchase loans but all eyes will be on its impact in the coming months to see whether it substantially boosts the number of first-time buyers and eases demand for rented accommodation.

“Remortgaging has been especially subdued, despite several lenders raising their SVRs in recent months. With the stuttering economy, a rise in interest rates is a distant prospect, and so borrowers with tracker deals have had less incentive to shop around.”

Ashley Brown, director of independent mortgage broker, Moneysprite, added: “The mortgage industry is still lying comatose on the slab, but its vital signs are slowly returning.

“But this time the dials are flickering more strongly on the supply, rather than demand, side.

“After a slow start, the Funding for Lending scheme is beginning to coax lenders into lending again.

“But this BBA data shows that the appetite among borrowers simply isn’t there.

“Wherever they can, people are saving or paying down debt, rather than taking on more.

“It’s that weak demand that now poses the most serious threat to the mortgage industry.

“The cost of borrowing is now coming down at 70%, 80% and 85% LTV. The 60% LTV market is saturated and lenders are having to look to higher loan-to-values to achieve a better margin.

“With rates at 90% LTV below 5% and at 95% LTV below 6%, price is no longer an obstacle.

“Lack of demand and people’s struggle to find deposits, rather than prohibitively high rates, are now holding the industry back.

“The cause may have changed, but the symptoms, and the pain, are the same.”


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