Mortgage Lending Falls Sharply
October 22, 2007
There was a 12% fall in mortgage lending in September, which adds great weight to the belief that the housing market is slowing down. The Council of Mortgage Lenders (CML) revealed figures showing that loans totalled £29.96bn in September – down by more than £4bn on August’s figure. The fall is twice the usual 5% drop expected at this time of year.
There can be little doubt that consumers are finally felling the impact of the five interest rate rises, coupled with the recent credit crunch, and many are not borrowing where they might have before. For some first-time buyers, they have simply been priced out of the market, and many homeowners cannot move up the ladder thanks to rising prices and mortgage rates.
With banks and building societies withdrawing a huge number of mortgage products from the market, and making their lending criteria much tougher, buyers have been simply driven from the market.
These figures follow the International Monetary Fund’s suggestion that Britain’s houses are as much as 40% overvalued, and will add to the concerns that Britain is about to face a major house price correction.
Figures from the Land Registry put the UK average house price at £182,914, which is up by 231% or £127,664 in a decade. A correction of 40% would knock over £50,000 off that value.
The CML said that the loan fall in September was ‘larger than the norm’, adding: “This easing in the market is another sign of the expected consumer response to the five interest rate rises experienced since August 2006. We have been expecting a slowdown in monthly lending levels in line with interest rate rises. In the coming months, we expect to see monthly lending levels dip below their 2006 levels for the first time this year as rate effects are exacerbated by the recent liquidity problems in the mortgage market.”
Britain also saw a 30% rise in home repossessions in the first six months of the year, taking the figure up to 14,000.