Mortgage Lending Well down in 2008
On 18 September, the Council of Mortgage Lenders (CML) reported that gross lending in August stood at an estimated £21.8 billion. It’s a 12% fall from July’s figures, but - perhaps surprisingly - ‘only’ 36% lower than last August.
36% is a big fall, but it’s not as big as you might expect. We’ve been hearing all about the credit crunch for over a year now, with a seemingly endless flow of bad news telling us that credit’s getting harder and harder to get. Even after all this bad news, lending is still at two-thirds the level we saw back in August 2007, before the troubles in the mortgage market really kicked off.
Mortgages, of course, are the key to home ownership for most people. Very few of us can afford a house outright, so finding a mortgage is essential. As long as mortgages are relatively hard to get, there’s much less demand for properties, which goes a long way towards explaining the recent drops in house prices. If mortgage funding dried up completely, it’s safe to assume that prices would drop a lot faster: there would be so few potential buyers that many would-be sellers would be forced to accept lower offers.
But there’s no sign of that. The mortgage market may be going through hard times, but it’s still very much ‘in business’. After all, £21.8 billion is a lot of money - the 36% drop announced by the Council of Mortgage Lenders means that mortgage lending is still at 64% of the level it was at last year.
Why so high? For people with substantial deposits, finding a mortgage isn’t particularly difficult. Basically, mortgage providers have become a lot more ‘risk averse’ than they used to be - more nervous about lending to people whose credit ratings aren’t perfect, or who don’t have much money to put down. According to the Council for Mortgage Lenders: ‘The average first-time buyer had a deposit of 15% in July, up from 13% in June’.
This doesn’t mean that mortgages are only available to people with a flawless credit rating and plenty of cash in the bank. It does, however, underline the importance of talking to a specialist with the right contacts - and the right experience - to find a mortgage that’s right for the individual’s circumstances.
No-one really knows what’ll happen next in the mortgage market, but one thing’s clear. House prices depend heavily on the availability of mortgages - and that’s unlikely to improve until mortgage providers become more confident about lending the money they do have. In the words of Michael Coogan, Direct General of the Council of Mortgage Lenders: “Restoring the flow of funding to the mortgage market is crucial to helping the housing market recovery”.
