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Mortgage lending falls by 50%

Lending criteria were tightened further in response to the worsening economy and falling house prices, creating a barrier for many first-time buyers wishing to enter the market.

The typical first-time buyer deposit in January was 24%, the largest amount on record.

But at the same time lower interest rates and income multiples have made payments easier for those able to obtain credit. First-time buyers typically borrowed three times their income in January and the average loan was £97,000. The typical first-time buyer spent 15.8% of income on mortgage interest payments, the lowest proportion since July 2004.

The average home mover borrowed £117,300 and spent 11.9% of their income on interest payments, the lowest proportion since March 2004.

Remortgaging activity increased with 44,000 remortgage loans worth £6billion, up from 41,000 loans worth £5.6billion in December. Despite the modest increase month on month, the CML said it expected demand for remortgaging to remain weak in 2009 as the most attractive option for many borrowers would be to stay on reversion rates in a low interest rate environment. Gross lending declined to £11.7billion, the lowest monthly lending figure since April 2001.

Tracker mortgages increased in popularity (38% of loans in January, compared with 35% in December) as the average tracker rate fell from 4.26% to 3.64% against a backdrop of lower official rates. For the first time since March 2005 the majority of new lending has not been on fixed rates; only 49% of new loans were fixed in January.

Michael Coogan, CML director general said: "January and February are usually the quietest months in the mortgage market. The current withdrawal of many specialist, small and foreign lenders from new lending has created a huge gap in the capacity to fund mortgages to match consumer demand and this is continuing in 2009. People want to know why lenders are not lending.  They are, but Government schemes to restore the flow of funds are primarily focused on a few large banks and recent lending commitments by a few lenders cannot fill the gap overnight although we hope to see more funds flowing into mortgage activity later in the year.

"On top of the action to plug the funding gap and stabilise financial markets, we need to see a sustained revival of consumer demand. Mortgage affordability is good for those borrowers with deposits, but consumer confidence and lender appetite will remain muted in the face of rising unemployment and falling house prices."

Commenting on the CML’s mortgage lending data, Simon Rubinsohn, Royal Institution of Chartered Surveyors, chief economist said: "The drop in new home loans highlighted in the CML data clearly demonstrates the fundamental problem in the mortgage market at the present time.

"Buyer enquiries have risen for four successive months according to RICS data but there has been little follow through on aggregate lending. Part of the problem is simply the withdrawal of overseas and some smaller lenders from the marketplace. But the commitment to increase lending from those banks where the Government holds a majority stake is still relatively modest and is unlikely to raise available mortgage finance this year by as much as 10% compared with 2008.

"While it is conceivable that rising unemployment may gradually curb the enthusiasm of potential house purchasers, at this stage the combination of lower prices and the cheaper cost of money is proving the more powerful influence."

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One thought on “Mortgage lending falls by 50%

  1. Gareth Evans says:

    While the article is correct it takes the lenders so long to prooduce the figures and the completions relate to deals agreed 3 to 4 months earlier the negative picture actually relates to the negative response to the collapse of Lehman Brothers bank and the fall out in the credit market. I can tell you as someone at the coal face that mortgage applications have increased since then and buyers are out there looking for bargain. It is still true that you need 25% deposit to join the party but if you have then there are deals to be done. We have seen a double in the number of searches on rightmove.co.uk since christmas.
    I predict that in 3-4 month time the reports will show that the bottom of the market was Oct 08 to Jan 09!

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