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UK mortgage lending sees fourth consecutive year on year increase

This is 5% higher than in October, and 13% higher than in November 2010 and the CML confirmed that it now expects gross lending in 2011 to total £138 billion, with net lending of £9 billion.
For 2012, the CML's new central forecast is for £133 billion of gross lending and £5 billion of net lending, representing the weaker economic backdrop that now seems likely. However, with so much economic uncertainty at present, this is subject to considerable variation in either direction.

The CML continues to expect the bulk of the negative effects in the housing market of wider economic uncertainty to manifest through a continuing low level of housing transactions. While an estimated 852,000 transactions are likely to have taken place in 2011, the CML anticipates fewer transactions next year with a central forecast of 825,000.

In terms of mortgage repayment difficulties, the CML expects the increasing pressures on the household sector to unwind some of the improvements in mortgage arrears and repossessions experienced over the past two years. The central forecast is for 45,000 repossessions next year, up from an estimated 37,000 this year but still fewer than the 2009 figure, and far lower than in the downturn of the 1990s.

‘The weak state of the wider economy and household finances creates a challenging and highly uncertain backdrop for the housing and mortgage markets. Despite the fact that activity levels have already been subdued for several years, we have pencilled in a broadly flat picture for both mortgage lending and property transactions at least until real incomes show signs of stabilising as inflationary pressures recede,’ said CML chief economist Bob Pannell.

‘As a by-product of sovereign debt worries, lenders face challenging conditions in wholesale funding markets, and these could have negative effects on the cost and availability of UK residential mortgages through some or all of next year,’ he explained.

‘But, if European leaders navigate a comprehensive and sustainable way through Eurozone problems, current financial market stresses could heal, and the previous pattern of gradual improvement in cost and availability of funds re-emerge, relatively quickly. This in turn could have a major benefit on UK growth prospects, and boost household confidence and appetite to borrow,’ he added.

The reaction from the property industry has been mixed. According to Richard Sexton, director of e.surv chartered surveyors, while the gross mortgage lending figure for November is pretty stellar, the future does not look so bright. ‘The recent international economic turmoil has landed a series of heavy blows to the mortgage market, blows that will leave it still feeling groggy in the New Year,’ he said.

‘Credit conditions are congealing, and confidence is low. The best we can hope for is for lending to slide only marginally in 2012 as predictions of a flat market now look optimistic.  There certainly won’t be a great deal of scope for banks to increase their loan books,’ he explained.

‘The rate at which banks lend to each other, LIBOR, is creeping ominously upwards to 1.05%, and they will look to pass these costs onto consumers, which means mortgages rates will rise and high loan to value lending will fall. The small gains for first time buyers we’ve seen throughout the summer look certain to be reversed. Banks are running for cover and scratching around for capital. We’re seeing them focus more on lending to buy to let investors, which they see as lower risk, who are accounting for an increasingly large percentage of new loans,’ he added.

Liza-Jane Kelly, sales director of estate agent Marsh & Parsons, pointed out that rock bottom interest rates have helped sustain demand, driving an improved mortgage market in recent months. ‘The increased commitment from lenders in the latter part of the year is encouraging to say the least. However, we are still a long way from the level of lending seen before the downturn, given the lack of vitality in the UK’s economy and the ongoing eurozone crisis, any improvement in mortgage lending is a welcome bonus,’ she explained.

‘While the CML holds a more negative outlook for the national market in the coming year, we anticipate another encouraging performance from London’s housing market. In the last month alone, we’ve seen a 21% annual increase in the number of properties placed under offer, as a committed corps of wealthy international and domestic buyers look to move money from more volatile investments into the capital’s bricks and mortar. As the debt crisis in Europe continues in the New Year, we expect this trend to continue, helping drive activity in prime London in 2012,’ she added.

Nicholas Leeming, business development director of Zoopla said that despite the uncertain economic backdrop there is no denying that lenders have improved mortgage availability in 2011. ‘With the government scheme to facilitate 95% lending to first time buyers on new build properties this is likely to continue into next year. The difficulties many face in trying to raise a deposit will remain, but for those able to muster enough cash to secure funding there will be good opportunities to buy in the market next year. Inflation is beginning to fall so there will be less pressure on the Bank of England to boost interest rates and this will help keep mortgage rates low and affordable,’ he added.

Paul Hunt, managing director of Phoebus Software, said; ‘We haven’t seen four consecutive months of annual growth in gross lending since the end of 2007 and the fact that this strengthening has occurred against an increasingly stormy backdrop in the eurozone is a sign of remarkable confidence among UK lenders.
But he believes that there will still be big challenges for the industry in 2012. ‘But rather than running for the hills, lenders have shown they are prepared to take advantage of the Bank’s commitment to a dovish monetary course, offering record breaking low rates and boosting gross lending by 13% in the year. It’s right to point out that 2012 may not bring a fair wind to the market, but the industry can take heart that lenders have shown in 2011 they are not easily spooked,’ he explained.

David Whittaker, managing director of Mortgages for Business, believes that recent improved lending figures are due to lenders needing to hit targets before the end of the year rather than a significant improvement in the residential housing market.

‘So anyone hailing this as a new dawn is as misguided as the chap who suggested a single European currency was a sensible long term venture. As the CML suggests, the economic backdrop will keep residential activity subdued in 2012 which means the private rental sector will continue to grow in importance,’ he said.

‘But it’s not simply a question of lenders throwing a few vanilla buy to let products into the mix. If we’re to avoid a total housing crisis, investors need to be able to secure finance on more complex investments such as multi-unit freehold blocks and houses of multiple occupancy. If the owner occupier sector is going nowhere in 2012 then it’s vital more is done to meet rental demand,’ he added.