The real deal with mortgage lending figures

Recently the media has taken particular interest in the housing market slowing down, and many stories highlight that a variety of figures are falling, especially since August last year. However, the figures quoted are often only reflecting short term trends of less than three months, and previous long term trends are rarely taken into account. One particular figure that has appeared recently is the Council of Mortgage Lenders revelation that Gross Mortgage Lending was down to 62,000 in December.

The Mirror said on this story that ‘Demand for home loans slumped 35 per cent to 62,000 in December’ while The Guardian noted that ‘The UK housing marker marked its sixth month of price falls last month and mortgage lending fell to a two year low in December.’ Out of these the second is most truthful, because they both quote the Gross Mortgage Lending figure, which does not fully reflect ‘demand’ as The Mirror says. Gross Mortgage Lending reflects demand and the willingness of banks to lend, and it could be the combination of these two factors that has caused the drop off.

That there was a drop in lending in December is true, and the amount of approvals during December was lower than in any other month during the year. However, by in large, approvals rose month on month until August last year. It could be that the fall off has not been caused by decreasing demand at all, as the fall off conveniently coincides with the revelations of the credit crunch, and a mini crash in financial markets. The tail off, therefore, could be more to do with lender’s confidence rather than buyers demand. In fact, when you match this with the dip in mortgages applications being approved over the past year, -37.8 per cent in December compared to a year earlier, and a sharp drop off since August, it seems that this theory is a more feasible factor than demand.

Furthermore, a 35 per cent dip in one month is very large, but it’s also not correct. Lending fell from 80,000 in November to 62,000 in December – a 22.5 per cent drop. The ‘35 per cent drop’ The Mirror quotes comes from the current level against last year’s level, which is confusing to say the least. That aside, it is a sudden dip to levels not seen since the winter of 2005, when house prices showed a momentary cooling before they continued to rise, albeit at a slower rate than from 2000. Is this to say that the same will happen again? Who’s to know? At least it’s a possibility.

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