17% year-on-year fall in mortgage lending

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by Kay Murchie

New research from the Council of Mortgage Lenders (CML) shows the credit squeeze on homeowners continues as they reveal a 17% year-on-year fall in mortgage lending.

The CML said there was £26.3 billion worth of gross mortgage lending in March compared to £31.7 billion lent in March 2007.

However, there is a slight improvement as the figures revealed a 5% increase on the £25 billion recorded in February.

The low figure for March reflects the downturn in the mortgage market that increased during the month, as lenders struggling to raise funds cut or withdrew their mortgage products.

Normally, the CML expects a 20% increase in lending between February and March, and thus such a moderate increase suggests the market is still in decline.

Traditionally, March is a good month for mortgage lending as this is a time when the market improves as prospective buyers go house-hunting.

Michael Coogan of the CML said lending on completed transactions is currently running at levels considerably lower than 12 months ago. However, the picture for mortgage approvals for new business and prospective lending levels in the next few months is worsening.

We await the eagerly anticipated announcement of further action by the Bank of England to respond to these rapidly worsening market conditions, added Mr Coogan.

Research shows there are just 4,100 different mortgage deals on the market, compared with 15,599 last July.

Howard Archer, chief UK economist at Global Insight explained that although the Bank of England has now lowered rates by 0.75% since the end of last year, it is having little impact due to lenders demanding higher margins as funding dries up.

The low level of mortgage activity is not only a consequence of slowing demand for houses due to the elevated affordability pressures facing potential house buyers, but also increasingly due to very tight credit conditions leading to markedly fewer and more expensive mortgages being available, added Mr Archer.

The CML data highlights the need for concerted, sustained action to try and get banks to lend to each other, so that more liquidity is available to fund mortgage lending and market interest rates come down, concluded Mr Archer.