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CML seeks greater clarity as lending slump continues

Gross lending rose slightly to £18.6 billion, up 6% from September but 44% lower than October last year.

The average loan-to-value and income multiple continued to contract for all homebuyers as a result of falling house prices and tightened lending criteria.First-time buyers typically borrowed 83% of the property’s value and 3.10 times their income, down from 84% and 3.18 in September. Home movers typically borrowed 68% of the property’s value and 2.73 time their income, down from 71% and 2.73 in September.

Interest payments have declined as a result of lower mortgage rates and income multiples. Interest payments typically consumed 19.3% of a first-time buyer’s income, down from 19.7% in September. Home movers typically spent 16.1% of their income on interest payments, down from 16.9% in September.

Michael Coogan, CML director general, said: “To different degrees lenders are facing conflicting pressures to recapitalise against possible future losses, service Government’s preference shareholdings at 12%, pay a premium to access the Bank of England Special Liquidity Scheme, show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive rates to new borrowers and savers to maintain economic activity in a recession.

“And they are supposed to ensure their long-term financial stability to help the UK economy rebuild itself when we are out of the recession.

“Current policy objectives are conflicting and incoherent. The Government needs to decide on its key priority. The tug of war with lenders being pulled in every direction at once needs to end.

“We believe the Government urgently needs to review the cumulative effect of the approach it has taken in the recapitalisation process on large lenders’ willingness and capacity to lend.

“Ultimately, the response of each lender – whether on commitments to follow base rate moves or to finance new business in the future – will depend on its access to, and the price of, its funding.”

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