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UK lenders facing unprecedented demand in difficult times

The Council of Mortgage Lenders, which represents most lenders in the UK, said they are pulled between the demands of the Bank of England, government, new borrowers, existing borrowers and also deal with an increasing number of arrears all at time when lending volumes bump along the bottom.

'Lenders are facing conflicting pressures – to recapitalise against possible future losses, service the Government's preference shareholdings at 12%, pay a premium to access the Bank of England special liquidity scheme, show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive rates to new borrowers and savers to maintain economic activity in a recession,' said CML director general Michael Coogan.

'And they are supposed to ensure their long-term financial stability to help the UK economy rebuild itself when we are out of the recession. Current policy objectives are conflicting and incoherent. The Government needs to decide on its key priority. The tug-of-war, with lenders being pulled in every direction at once, needs to end,' he added.

He spoke out after revealing there were just 39,900 house purchase loans in October, worth £5.5 billion. This was an increase of 14% in volume and 10% in value from September, but an annual decline of 52% in volume and 57% in value.

There were 15,400 loans to first-time buyers and 24,500 home mover loans in October, up 15% and 14% respectively from September.

There were also 70,000 remortgage loans worth £9.4 billion, an increase of 12% in volume and 11% in value from September and a decline of 31% in volume and 28% in value from October 2007.

The average loan-to-value and income multiple continued to contract for all homebuyers. First-time buyers typically borrowed 83% of the property's value and 3.10 times their income, down from 84% and 3.18 in September. Home movers typically borrowed 68% of the property's value and 2.73 times their income, down from 71% and 2.73 in September.