Mortgage Lending on the Decline

By March 12, 2009Mortgage

Mortgage lending as decreased by 60% in January 2009 with the net value of new loans falling to only £690m, figures from the Bank of England showed today.

Mortgage Lending

Mortgage Lending

Net lending, which strips out repayments and redemptions, had bounced back in December to £1.8bn, but has now returned to the levels seen in October and November despite large cuts to the Bank base rate, now at 0.5%, their lowest ever level.

New buyer numbers remained the same as in December, with 31,000 mortgages approved for house purchases which is up on November’s figure of 27,000 but far below January 2008 figure of 70,000.

Remortgaging has fallen since last autumn as fixed-rate mortgage holders find that the best deal is with their current banks variable deal. This has been particularly true of those with little equity in their homes.

In October, 72,000 remortgages were approved, this figure had fallen to 36,000 by December and in January it dropped to 34,000. The value of those loans dropped from £9.9bn in September to £4.3bn in January.

Buyer difficulty – It is the lack of mortgages offered for first time buyers, the 85% and above LTV which has continued to be reflected in the number of mortgages taken up. The best rates are those cash or equity rich with at least 40% deposit, in comparison you will pay approximately 5% above the base rate for any mortgage with a 10% LTV.

Falling house prices are also deterring some people from entering the market. This morning, Hometrack said prices in England and Wales had fallen by 0.8% in February, and other market surveys have also reported a continued drop in values.

Howard Archer, chief UK economist at IHS Global Insight, said: “The Bank of England reported that mortgage approvals remained mired near record low levels in January at a level consistent with markedly falling house prices. This defied expectations of a modest further rise in mortgage approvals from November’s record low.”

Meanwhile, the Bank’s figures for unsecured lending, through credit cards, personal loans and overdrafts show a £403m increase in net borrowing in January, which is higher than December’s figure of £271m. However, lending remains below the six-month average.

Archer said: “Consumer borrowing is extremely low by past norms and it is likely to be limited over the coming months by ongoing very tight lending conditions, as well as many people increasingly looking to rein in their borrowing.”

Additional figures from the Building Societies Association showed savers withdrew more than they paid in January, recording a net outflow of £390m. However this is not uncommon in the first part of the year.

“The withdrawal represents less than 4% of the total net receipts received by building societies in 2008,” said Coles. “It is not unusual for building societies to have a net withdrawal in January, as savers take money out of their accounts to pay for Christmas expenditure. Outflows have occurred in six Januaries out of the last 10.”

Coles admitted low interest rates had reduced the incentive to save, but said that despite this 1.2m accounts had been opened in 2008.

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