Building society lending up, but funds restricted

 “The BSA expects the mortgage market to remain similarly subdued over the remainder of 2009. This is primarily because of the difficulties all lenders face in raising funds for mortgage lending.  We warned back in March, when Bank Rate was cut to its present level, that the flow of funds into the mortgage market would be restricted as savings inflows decline as a result of very low interest rates.”

In the savings market, balances held in savings accounts with building societies reduced by £0.9 billion. This compares to an increase in balances of £1.9 billion in July 2008.

Adrian Coles said:

“Low interest rates, rising unemployment and weak earnings growth create an environment in which it is very difficult for deposit takers to attract funds. Across the market, savings flows are much lower than a year ago, and this trend is likely to continue. The BSA estimates that total UK savings balances might struggle to increase by £11 billion in 2009, much lower than the £60 billion increase in balances in 2008.

“These figures include interest added to accounts. If this amount of interest were not included, such a low forecast for 2009 suggests that savers will actually withdraw more money than they deposit this year across the entire savings market. With the retail market currently the most important source of funds for all lenders, and with wholesale funding continuing to be disrupted, it is perhaps not surprising that lending activity is constrained.”

•Building society gross lending was £2,067 million in July 2009 compared to £3,566 million in July 2008.
•Net lending by building societies in July 2009 was -£577 million compared to -£112 million in July 2008.
•Mortgage approvals in July 2009 were £1,490 million compared to £2,636 million in July 2008.
•Savings balances held by building societies decreased by £912 million in July 2009, compared to an increase of £1,935 million in July 2008.
•Excluding any interest added to building society savings accounts, £1,361 million was withdrawn in July 2009, compared to a net receipt of £1,435 million in July 2008.
•Building societies had a net receipt of £450 million into Cash ISAs in July 2009, compared to net withdrawal of £228 million in July 2008.

In response to these latest figures leading industry figures were quick to comment. James Hyman, Partner at Cluttons said:

It is good to see gross lending figures are up but the retracted mortgage market is still a major barrier for homebuyers who are keen to buy before prices climb substantially. There are plenty of buyers out there with good credit ratings who are not trying to borrow beyond their means, but the banks are still refusing to lend at anything like the levels needed. This has to change if we are going to see a sustained recovery in the housing market."

Nick Hopkinson, Director of Property Portfolio Rescue (PPR) said:

“The fact remains that securing a mortgage is still proving something of a herculean task, with an unblemished credit history and a hefty deposit now the very minimum of requirements. While interest rates remain the lowest they’ve ever been, the banks are unfairly increasing loan costs and fees for new mortgages.

“Despite a marginal improvement, lending remains significantly down on a year ago, with gross lending in July nearly half that of July 2008. As long as lending remains at such subdued levels a true recovery in the property market will not take place.”

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