Mortgage lending continues to fall

The Council of Mortgage Lenders (CML) has today confirmed that mortgage lending has continued to fall during the first part of the year. The figures show significant falls for all types of mortgage when compared to December, and in all cases a reduction of more than 50% since January last year. Much of the reason for this can be attributed to a tightening of lending criteria in response to the worsening economic climate a further predicted falls in house prices.

The figures show a total of 23,400 mortgages went ahead for house purchase in January compared with 32,400 in December and 48,600 in January last year. Included in these figures is confirmation that first time buyers are finding it increasingly difficult to get on the property ladder, with 27% fewer loans being drawn down in January than in December, and 51% fewer than a year ago. This trend is further confirmed by the CML statement which indicates that the typical deposit put down by a first time buyer in January was 24%. The statistics were even worse for those wanting to move home, where there were 28% fewer completions in January than in December and 53% fewer than the same time last year.

There was a slight increase in the number of new remortgage loans in January when compared to December, but the increase of just 3,000 on the month is modest. The CML expect remortgage activity to remain subdued this year for a variety of reasons. Principle among these reasons is the fact that for many mortgage payers, the best deal continues to be the standard variable rate offered by their current lender, and with falling house prices reducing the level of equity in many properties, this looks unlikely to change in the near future. Whilst the price of schemes being offered has fallen recently, these still do not compare to the variable rates offered by the largest lenders. Michael Coogan, CML director general commented:

"January and February are usually the quietest months in the mortgage market. The current withdrawal of many specialist, small and foreign lenders from new lending has created a huge gap in the capacity to fund mortgages to match consumer demand and this is continuing in 2009. People want to know why lenders are not lending. They are, but government schemes to restore the flow of funds are primarily focused on a few large banks and recent lending commitments by a few lenders cannot fill the gap overnight although we hope to see more funds flowing into mortgage activity later in the year.

"On top of the action to plug the funding gap and stabilise financial markets, we need to see a sustained revival of consumer demand. Mortgage affordability is good for those borrowers with deposits, but consumer confidence and lender appetite will remain muted in the face of rising unemployment and falling house prices."

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