Mortgage lending in the UK stalls

Gross mortgage lending in the UK held steady in May and was an estimated £16.5 billion, according to the latest data from the Council of Mortgage Lenders.

This is identical to April’s gross lending total and is 12% higher than May last year when it was £14.8 billion.

‘Market indicators point to a slowdown in activity levels, in part associated with new mortgage rules, but it is unclear how lasting this will be,’ said CML chief economist Bob Pannell.

‘Implementation of the new regulatory regime is likely to have disrupted the normal patterns of activity, creating statistical "fog" around the published figures. As this lifts over the coming months, a clearer picture as to any lasting impact of the MMR rules on lending activity should emerge,’ he added.

David Newnes, director of Your Move and Reeds Rains owned by LSL Property Services, pointed out that the lending landscape is weathering a significant transformation. ‘This is calming the pace of growth in the mortgage market, as stricter borrowing criteria and affordability checks lengthen the process and moderate home loans. Annual growth in house sales cooled in May, prices are beginning to level out and even dip at the top end of the market in London,’ he explained.

‘However it is still very early days in the shadow of the regulatory change and we need a period of time before we can fully understand the impact of the overhaul. The mortgage market is still healthily on the road to recovery, with gross lending 12% higher than May last year,’ he said.

‘At the lower end of the mortgage market, first time buyer demand is still buoyant and supporting activity levels and market confidence. With inflation falling to a four-year low, and with renewed signs that the Chancellor George Osborne will not curtail Help to Buy ahead of time, many households are seizing their opportunity to get onto the property ladder,’ he added.

Duncan Kreeger, director of lender West One Loans, believes that the new mortgage rules are playing a part. ‘Mortgage lending is treading water while millions scramble for homes. New affordability rules, such as we’ve seen introduced recently via the MMR are certainly playing a part. But the volume of lending is not the problem, more of it wouldn’t solve the nation’s housing crisis,’ he said.

‘The problem is there aren’t enough homes to go around. And despite some baby steps, we are facing a serious lack of development. The link between lending and building has been broken. Increasingly alternative lenders are funding development and increasing the stock of homes on the market. The future lies in improving affordability, not in pumping up house prices without justification,’ he added.

According to Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), the new mortgage rules have justifiably tightened the screw on lending to ensure it is permanently focused on affordability. 'Early indications show mortgage activity has temporarily slowed and is clearly following an entirely different trajectory to UK house prices,' he said.
 
'There is clearly a major discrepancy between soaring house prices and subdued mortgage activity, arising from the increasing dominance of cash. Fewer than two thirds of property purchases in the first quarter of 2014 involved a mortgage and we estimate that just 39% of the funds used to purchase these properties were mortgage financed, which represents a new low,' he pointd out.
 
'The impact of MMR will be especially significant as it may well control the level of high loan to income (LTI) lending in future, ensuring that mortgage activity isn’t carried along on the tide of rising house prices. Higher interest rates, when they come, will also have a natural dampening effect on both housing and mortgage markets. For now, the Bank may opt to hold fire before taking further action that could have negative ramifications for credit worthy borrowers,' he added.