It’s the economy, stupid

Commenting on the gross mortgage lending statistics released this morning by the CML, Eric Stoclet, CEO of Crown Mortgage Management, said: “With GDP shrinking, house prices dropping and the impact of public spending cuts still uncertain, lenders responded emphatically in January.

“You can’t disguise adverse lending conditions. Demanding that lenders put their hands deeper into their pockets misses the point. It’s the economy, stupid.

“As much as the government hopes that they will take the lead in a housing market recovery, lenders can hardly ignore what’s going on around them. That’s just bad business.

“Until the questions about the economy can be answered, we aren’t going to see mortgage lending pick up significantly. This means that the property market is likely to remain subdued in the medium term, putting borrowers with tight finances at greater risk of falling into negative equity.”

David Whittaker, managing director of Mortgages For Business, agreed: “Imploring lenders to lend more this year will be as fruitful as asking Ed Balls to quieten down – it simply won’t happen – and these figures highlight how important the private rental sector is going to be over the next few years.

“Until the mortgage market opens fully to first-time buyers it will continue to stagnate, leaving hundreds of thousands of people pouring into the rental sector.

“Luckily, the buy-to-let market is showing improvement and will go from strength-to-strength this year as landlords capitalise on flat house prices and rising rents; however, whether they will be able to keep up with demand remains to be seen.”

The CML figures showed that gross mortgage lending declined to an estimated £9.2 billion in January - a 13% fall from £10.6 billion in December but a 5% rise from £ 8.8 billion in January 2010.

This is the first year-on-year increase since August 2010, although comparisons with the beginning of last year are distorted as some households brought forward house purchase activity in the closing months of 2009 to take advantage of the stamp duty concession expiring at the end of the year.

CML economist Peter Charles commented: “The Bank of England’s Inflation Report this week noted that the UK banks face a significant funding challenge over the next couple of years: in total, including funding supported by the public support schemes, around £400 billion to £500 billion of wholesale term debt is due to mature by the end of 2012. This implies that, even in the unlikely event of a marked upturn in mortgage demand, the level of activity in the mortgage market can be expected to remain constrained.

“As a greater degree of equilibrium is restored to financial markets, the availability of funding for mortgage lending should improve from current levels to support more normal levels of activity. However, the unprecedented expansion of wholesale funding, and hence mortgage lending, experienced in the mid 2000s is unlikely to return.”