The latest figures issued by the Council of Mortgage Lenders (CML) indicate that mortgage lending went up by 17% in the month of June and that mortgage approvals are at their highest level for more than a year. The group said that the increase was mainly due to seasonal factors but lending was actually running at around half last year’s level. Statistics from the British Bankers Association (BBA) show that 35,235 home loans were approved in June – up 61% on the same period of last year. Net mortgage lending, stripping out redemptions and repayments, was also higher by 5.1% year-on-year to £2.6bn last month. These figures are seen as evidence that banks are loosening their strict lending criteria.
Commenting on the figures, the CML’s economist, Paul Samter said: “The pick-up in June’s lending largely reflects seasonal factors, and these may well support lending volumes at moderately higher levels over the rest of the summer. But the combined effects of the restricted nature of mortgage funding, reduced number of active lenders, weak labour market and limited consumer demand are likely to hold back any significant and underlying improvement. Our forecast for gross mortgage lending of £145bn this year is unchanged.”
David Dooks, BBA statistics director said: “Numbers of new home loans approved by the high street banks are recovering from the very low level last November and, so far this year, gross mortgage lending has topped £50bn.” Although June’s figure for mortgage lending was the highest this year, it showed how far the market has slipped – being 48% less than June 2008. Lending outside the mortgage market, particularly to non-financial companies, is clearly struggling, with loans to these companies being down by £200m in June. This has prompted certain economists to call for the Bank of England to extend its ‘quantative easing’ programme.
Interest Rates Creeping Up
Whilst the number of loans may be up, the actual cost of borrowing is also going up. The Bank of England has reported that the cost of the average two-year fixed home loan rose from 3.98% to 4.47% in June with Nationwide and state-owned Northern Rock upping the cost of their most popular deals. The financial website Moneyfacts says that the banks have increased their interest rates on personal mortgages fourfold in recent months, despite the base rate remaining at an all-time low of 0.5%. Angela Knight, the chief executive of BBA justified this by stating that the banks had to pay a lot more than 0.5% interest when buying the loans in the wholesale market and that they were simply passing this on to the customer.
Under pressure on the BBC’s Andrew Marr Show the chancellor, Alistair Darling, said that he was ‘extremely concerned’ that the rates were too high and that banks had a duty to restore lending levels. The Chancellor went on to say that they Government ‘did not stabilize the banking system out of some charitable act’ and that ‘they’ve got to live up to the promises that they made.’ Unfortunately for homebuyers, it was more likely that Mr Darling was referring to loans made to business rather than the personal mortgage market.