Recovery in mortgage lending could be short-lived
Thursday, 20 October 2011 12:29 PM
September's recovery in mortgage lending could be short-lived, cautions the Council of Mortgage Lenders (CML).
Mortgage lending in September was four per cent higher than a year ago but two per cent lower than in August.
According to the CML house purchase and remortgage markets are faring well, with lending in the third quarter 15 per cent up on the second quarter and two per cent up on a year ago.
However the increase comes against a backdrop of subdued levels of activity and that could cause the recovery to be short-lived.
CML chief economist Bob Pannell said: "The housing market is very sensitive to wider household confidence, and this seems likely to weaken over the coming months in response to the latest spike in consumer prices and headline unemployment figures."
He said recent developments in the housing and mortgage markets might seem positive given the weak economic backdrop.
However, he added it is important to avoid drawing overly-optimistic conclusions from recent data such as house purchase approvals being at their highest level since December 2009.
The latest market report from the Royal Institution of Chartered Surveyors showed a lifeless market with flat house prices while HM Revenue and Customs figures showed that the underlying level of house sales was stagnating.
Here is some reaction from leading figures within the property world:
Paul Hunt, managing director of Phoebus Software, praises the resilience of the market and claims lenders' actions are preventing large falls:
"Despite the modest fall in lending seen in September, the quarterly and annual improvement shows how resilient the market has been to the economic challenges it faces.
"There are plenty more economic hurdles to jump before we will see a significant and sustained recovery in lending. But the fact that lenders have not retreated into their shells shows they are still seeking to boost lending wherever possible and this has supported the housing market, preventing larger falls than we have seen in the course of the year.
"Lenders have responded to the prospect of a low base rate in the long term by offering their lowest ever rates.
"Although this did not cause lending to rise last month, it has prevented larger falls and is a consequence of continuing confidence in borrowers’ finances and the UK housing market”.
Nicholas Leeming, business development director at Zoopla, questions whether the traditional Christmas property rush will happen in the current climate:
"Despite an annual rise in lending, the usual post summer rush to the market has been subdued because of a lack of confidence in the overall economy.
"Growth has stagnated, the eurozone crisis looms large and this is having a knock-on effect on people's propensity to enter the property market.
"Mortgage lenders are falling over themselves to come up with deals to tempt people to dip their toe in the water but only those with large deposits or large chunks of equity have been brave enough to take the plunge.
"With Christmas only two months away, we usually begin to see buyers and sellers rushing to complete before the seasonal break, it will be interesting to see if the rush is forthcoming or whether the majority of buyers and sellers hold out until next year."
David Whittaker, managing director of Mortgages For Business, highlights the difficulty of saving money for a deposit as a potential problem in the property market:
"The cocktail of record low interest rates and record high inflation has made the prospect of saving for a deposit as realistic as finding a pot of gold at the end of a rainbow.
"This, and the impact of low overall economic confidence, is reflected in subdued overall lending in the traditionally busy early autumn period when the market is usually dominated by owner occupiers buying and selling after the summer break.
"Many will take cheer from the fact that the year-on-year figures show solid growth in lending levels, but this rise has been driven by professional investors and buy-to-let borrowers.
"While property prices stagnate and rental demand increases at an ever increasing rate, it is landlords and professional investors who will continue to enjoy a purple patch and prop up the rest of the market."
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