Mortgage lending down 17% this spring
Mortgage lending has fallen by 17% since last year and is expected to fall further throughout 2008, new figures reveal.
Figures from mortgage lenders, compiled by the Council of Mortgage Lenders (CML), show lending in March increased by 5% to around £26.3 billion from the previous month. However, this was down by 17% from the £31.7 billion lent in March 2007.
The CML says lending always increases in March, as the housing market is traditionally stronger in spring than winter. However, under normal circumstances a 20% increase in lending is expected between February and March.
Michael Coogan, director general of the CML, says: “Lending on completed transactions is currently running at levels considerably lower than a year ago. However, the picture for mortgage approvals for new business and prospective lending levels in the next few months is worsening.”
He adds that the pressure is now on the Bank of England to take action to help banks struggling with liquidity.
The figures come amid reports that the Royal Bank of Scotland is preparing a rights issue for up to £12 billion.
The move would allow it to release additional shares to the market to raise cash to improve its financial position, which has been weakened by the credit crunch and its acquisition of Dutch bank ABN Amro.
The RBS group, which includes NatWest and Direct Line, has refused to confirm whether a rights issue is pending, but is due to give a trading statement update next week.
However, any rights issue should not have an impact on the bank's customers.
If the rumours are true, then RBS would be the first UK bank to ask its shareholders for more money. Swiss bank UBS and American investment bank Lehman Brothers are both planning rights issues.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.