Mortgage Approvals Down
Mortgages approved by major banks fell to a record low number in December. The figures, issued by the British Bankers' Association (BBA), showed that only 42,088 new loans were approved for house purchases in the month - the lowest number since the BBA started recording in 1997, and 38% lower than in December 2006.
The value of total advances was also down, to levels at the lowest since September 2005. Advances to consumers in December totalled £15.1bn, down from £16.5 in the previous month and 22% down on the figures for December 2006.
Last year saw a fairly steady decline in the value of mortgage lending as the US sub-prime crisis spilled over to bring about the credit crunch, and the housing market slowed, and finally consumer spending came under intense pressure and finally began to reduce.
BBA statistics director, David Dooks, said: "Mortgage lending weakened notably in the second half of 2007 as the credit crunch impacted on banks' ability to lend. At the same time, demand for mortgages also softened in the face of increased borrowing costs and lower disposable income. The combination of these factors is resulting in the marked market slowdown and weakness in house prices we are now seeing."
Net lending, however, that is lending without redemptions and repayments, did show a small increase in December. It rose to £4.7bn for the month, from £4.6bn in November. It was still lower than the last six months' average of £5.2bn. The number of loans approved for remortgages was slightly up, from 59,628 in November to 62,771 in December.
Howard Archer, of Global Insight, said the data gave further evidence that housing market activity was being substantially undermined by both stretched affordability and tightening lending practices. He added: "This adds to the already intense pressure on the Bank of England to cut interest rates in February, and to enact significant further reductions thereafter."
Figures from the Council of Mortgage Lenders (CML) agreed with the BBA figures. With the CML, homeowners borrowed £22.6bn in December - 25% less than in November, and 21% less than in December 2006. For the whole of 2007 mortgage lending was just short of £1bn per day at £362bn, a 5% increase on the £345bn lent in 2006.
The credit crunch was blamed for the fall, having lowered consumer confidence and put a limit on lenders' funds.
Director general of the CML, Michael Coogan, said: "The credit crunch moved into its fourth month in December and continued to constrain the cost and availability of funds to lenders and, in turn, the cost and number of mortgage products available to borrowers. Looking forward, the recent decline in interbank lending rates and the prospect of further reductions in base rates in 2008 should provide some help to the market, although lending volumes are likely to remain weak for the next few months."
Andrew Montlake, of independent mortgage broker Cobalt Capital, said: "As a mortgage broker, the December lending figures hardly made me dance with joy, although I agree with the CML that the outlook is more positive. There is a very good chance of an interest rate cut in February, and at least one more during 2008, which will incentivise borrowers and restore much needed confidence. At the same time, falling Libor and Swap rates are bringing succour to the banks. We're by no means out of the woods yet but I'm confident things will be a lot rosier by Spring."
Published on January 28, 2008
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