Mortgage lending down 50%

26 January 2009
The number of people being approved for new mortgages has nearly halved over the past year, while loans to existing homeowners have dropped by 54%.

The latest figures from the UK’s high street banks show that a total of 76,018 mortgages, with a combined value of £7.2 billion, were approved in December 2008. Of these, 30,360 were remortgages - 54% lower than a year earlier - and 22,051 were new mortgages for house purchase, down 47% from December 2007.

On the other side of the coin, the level of savings has jumped nearly 5% over the past 12 months, with £4 billion deposited in December alone.

David Dooks, statistics director at the British Bankers’ Association, which compiled the data, reports that gross mortgage lending in 2008 was 23% lower than in 2007, with lending by the main high street banks totalling £170 billion compared to £221 billion seen the previous year.

“The banks approved less than half the 2007 number of loans for house purchase, reflecting falling demand from households facing greater economic uncertainty and double-digit falls in house prices over the year which led to a wait-and-see mentality,” Dooks adds.

Other forms of consumer credit, including personal loans and credit cards, was also down in December. Dooks says this reflects people reining in their credit card spending, despite early sales and discount days, with more money put into savings as a result.

These latest figures come less than a week after the Council of Mortgage Lenders, which also represents non-high street banks as well as building societies, reported that December saw the lowest level of mortgage lending for nearly eight years. Its figures show home loan approvals are down 47% while the amount of money lent is down 30% from the levels seen in 2007. Read full story here

Economists are warning that although mortgage approvals cannot fall a great deal further in 2009, rising unemployment combined with plummeting consumer confidence and restricted lending mean activity levels seen in 2007 will remain a distant memory.

Seema Shah, property economist at Capital Economics, says the housing market is in a “sorry state”. However, she adds: “Looking ahead, the sharp interest rate cuts may have boosted new buyer interest."

Interest from buyers does seem to be looking up, thanks to lower house prices and interest rate cuts. The Royal Institute of Chartered Surveyors (RICS) reports a 17% increase in new buyer enquiries at the end of last year, as consumers went in search of bargain opportunities.

More recently, property website Globrix says it saw more searches in first two weeks of January than during any full month in 2008. It attributes this increase in interest to the fact that the number of sellers lowering their asking prices has jumped 111%.

Daniel Lee, chief executive of property search engine Globrix, says: “Sellers have finally accepted that prices need to come down. Also, the significant rise in the number of searches being carried out on Globrix suggest there are plenty of people out there who are now ready to buy — or a lot closer to that point. Buyer and seller expectations are finally starting to converge.”

But despite renewed interest from buyers, the fact that mortgages remain expensive and limited to people with large deposits is blocking any rise in housing transactions. Ian Perry, spokesman for RICS, says the number of house sales hit record lows in December despite more interest from buyers.

“Buyer interest is now at levels not seen since 2006 but without mortgage finance the housing market is at a standstill and transaction levels at an all time low,” he explains. “First-time buyers and owner-occupiers are now stuck in a market which does not fulfil their aspirations.”

The fact that house prices have further to fall could also be preventing more people from taking an interest in property.

Shah says: “The increasingly grim economic backdrop means that this improvement in confidence is unlikely to be sustained. In any case, even interest rate cuts are of little comfort when the continued tightening in lending criteria means that buyers need to stretch themselves even further financially to get on the housing ladder in the first place.”

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