Page last updated at 13:41 GMT, Thursday, 18 June 2009 14:41 UK

Mortgage lending falls back again

Browsing an estate agent's window
Lending is still very subdued, the CML says

Mortgage lending fell back in May, according to the latest figures from the Council of Mortgage Lenders (CML).

Gross lending totalled £10.3bn, which was 2% lower than in April and 58% lower than in May 2008.

The CML said that while lending for home buyers had been rising recently, lending to people changing their mortgage provider had dropped off.

Recent surveys from the Halifax and the Nationwide have suggested the slump in house prices may be tailing off.

But the CML said it was not expecting a significant recovery in sales in the next few months.

"Lending volumes appear to have stabilised at extremely low levels, but the weak labour market and lenders' limited access to funding will constrain activity for some time yet," said CML economist Paul Samter.

"Underneath the headline gross lending figure, it's likely that a moderate improvement in house purchase lending in May has been offset by very low remortgaging volumes as borrowers stay with existing deals."

More defaults ahead?

Mortgage lending in the UK has slumped dramatically since the onset of the banking crisis in the autumn of 2007.

Lenders expect write-offs to increase further if unemployment continues to rise
Bank of England

It picked up briefly in March, but has now fallen back again for the past two months as lenders continue to ration their funds.

The CML's analysis was supported by the Bank of England in its latest monthly report on trends in lending.

"The major UK lenders reported an increase in approvals for mortgages for house purchase in May," the Bank said.

"And there are some indications that mortgage availability has increased over the past month.

"However, lenders have highlighted a number of frictions that might delay the effect on completed housing market transactions and mortgage lending," it added.

Lenders told the Bank they were finding it hard to value properties accurately, which delayed their approvals processes.

This had led in turn to chains of house buyers breaking down, with approved mortgage deals more likely than before to be cancelled.

And the Bank also warned that the cost of new mortgages would remain high compared with its official bank rate, currently 0.5%.

It said lenders were building in a bigger financial cushion, in case further increases in unemployment led to more borrowers defaulting.

"Lenders expect write-offs to increase further if unemployment continues to rise," the Bank said.

More buyers

Despite the high level of mortgage deposits now required by lenders, estate agents are increasingly reporting that they have more potential buyers on their books.

The National Association of Estate Agents said its members now had four times as many house-hunters as homes for sale.

That amounted to an average of 299 house hunters per estate agency branch, but with just 69 properties for sale.

Actual sales are still very low, at just 10 a month on average.

But Gary Smith, president of the NAEA, said things were looking up.

"NAEA members are showing that there are buyers aplenty out there," he said.

"With mortgage interest rates at historically low levels and prices now far more realistic than in previous years, home ownership in the UK seems to be set to lead the way out of the recession," he added.

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