Fall in gross mortgage lending in the UK shrugged off by experts

Total gross mortgage lending in the UK declined to £10.4 billion in January, according to the latest estimates published by the Council of Mortgage Lenders.

This is some 9% lower than December’s gross lending figure of £11.4 billion and a 3% fall from £10.7 billion in January 2012.
CML market and data analyst Caroline Purdey said that she still believes that the UK government’s flagship Funding for Lending scheme will help boost lending this year.

‘Housing sentiment remains positive despite ongoing economic pressures. A worsening in the outlook for inflation presents a greater headwind, but we still expect the funding for lending scheme to lift activity over coming months,’ she explained.

‘House purchase activity was robust into the start of 2013, on the back of better mortgage availability and pricing, and we share the Bank of England’s confidence that this will continue over the coming months,’ she added.

Brian Murphy, head of lending at the Mortgage Advice Bureau, believes that brokers and borrowers are upbeat about the outlook despite the drop in gross mortgage lending in January.
‘Activity within the MAB network was strong in January, with total cases up by almost 17% year on year as mortgage applicants were increasingly tempted to take advantage of the competitive prices on offer,’ he said.

‘We are still adjusting to a new environment when it comes to mortgage rates, with little difference between average two and five year deals. Our National Mortgage Index shows three and five year rates last month were the most competitive since our records began in summer 2007, and with the Funding for Lending Scheme encouraging lenders to boost their activity, there should be no shortage of consumer demand at these prices,’ he explained.

‘We fully expect to see activity improve in the coming months as lenders look to increase their lending volumes in 2013 over 2012 levels,’ he added.

According to Richard Sexton, director of e.surv chartered surveyors, January’s figures actually mask a much broader improvement in the mortgage market. ‘The Funding for Lending scheme is easing the paralysis of the mortgage market, and helped bump house purchase lending up to its highest level for five years in January. It’s pushed down rates, pushed up the number of new loans, and cleared the way for an improvement in high LTV lending in 2013,’ he said.

‘First time buyers are now finding it easier to get a mortgage, and don’t need to build such big deposits to get an affordable loan. Lending to borrowers with small deposits increased 30% in January, and was 13% higher than a year ago, suggesting life is becoming easier for new buyers,’ he pointed out.

‘The underlying demand for mortgage finance has been higher than the availability of it for quite some time: it’s good to see lenders are now able to cater for more of that demand, particularly to first time buyers,’ he added.

But David Whittaker, managing director of Mortgages for Business, said that the first time buyer market is still stuck deep in the mire. ‘Despite the improvement in house purchase lending over the last couple of months, first time buyer numbers are bumping along at just 46% of the level they were at before the Lehman collapse,’ he commented.

‘There have been tentative improvements in the mortgage market over the last couple of months: rates are lower, choice is wider and lenders are growing in confidence. But it will take a sustained period of growth to propel the housing market back to anything like it’s former strength, which looks unlikely while the economy is so weak,’ he added.

But he explained that it is a different story in the buy to let market, where gross lending increased 19% in 2012. ‘Rates have fallen and the number of lenders offering buy to let products has risen to 27, the highest since the financial crisis. The on going problems in the first time buyer market are helping to keep gross yields on buy to let property healthy and I expect this to continue for some time,’ he added.

Essential Living, which has over £200 million in backing from M3 Partners, originating from the Washington State Pension Board, is the first UK firm set up to focus on building private rented homes in the UK and its executive director Martin Bellinger, said that more rental homes need to be built to ease the pressure on the mortgage market.

‘It's further proof of the pressure on first time buyers that makes the case for building rental homes event greater. What consumers need is professionally managed rental and councils could forge long term income streams by finding innovative ways to bring land to the market,’ he explained.

‘Our institutional backers are committed to long term ownership of homes and for policy makers keen to enhance public realm and improve amenities, this is a win-win situation,’ he added.

Peter Williams, Executive Director of Intermediary Mortgage Lending Association said that rather than worry about the lower figures it is better to take heart in the relative strength of house purchase activity compared to remortgage business.

'With lending to home buyers making up an increasing proportion of the total amount, it shows that the appetite for risk is returning, as seen in the overall growth of first time buyers during 2012. Despite the economic headwind, lenders are finding new and innovative ways to help people gain a foothold on the property ladder. Forward thinking products are emerging from a number of lenders including the Lloyds Banking Group, Nationwide and Barclays that should encourage more potential buyers to engage with the market,' he explained.

'On top of the Funding for Lending Scheme, the expected announcement of the Mortgage Indemnity Guarantee (MIG) backed mortgage programme will also encourage further lending at high loan to values (LTV) and means the future prospects for mortgage lending continue to look bright,' he added.

Christopher Down, chief executive of Hearthstone Investments, said that the latest CML figures show that potential home owners continue to face a number of economic pressures, including inflation and stringent lending conditions, which are preventing many from getting a foot on the housing ladder.

'However, as has consistently been the case throughout the last 20 years, bricks and mortar residential property continues to be seen as a strong and favourable investment, primarily due to its tangible nature, strong returns and low volatility. There appears to be a general sense of optimism and a largely positive outlook for the UK housing market in 2013 building on a modest upturn in first time buyer transactions in 2012,' he pointed out.