Ljs: Mortgage lending in December fell 6%

Sunday, January 23, 2011

Mortgage lending in December fell 6%

CML says mortgage lending figure was the lowest for a December since 2000, while total lending last year fell by 5% compared to 2009

Gross mortgage lending in December was an estimated �11bn, down 6% from November's �11.7bn and the lowest total for the month since 2000, according to latest figures from the Council of Mortgage Lenders (CML).

The December figure is 18% lower than the �13.3bn advanced in the same month in 2009, and is the fourth consecutive month in which gross lending has been at its weakest since the equivalent month in 2000, the CML says.

Lending totalled �34.4bn in the final quarter of last year, down almost 10% from the �37.9bn lent in the previous quarter and 11% lower than the �38.7bn lent in the last three months of 2009.

The December figures round off a year where total lending topped �136.3bn, down 5% from the �143.3bn advanced in 2009 and the lowest annual total since 2000 (�119.8bn). The CML said the 2010 figure was slightly above its annual forecast of �135bn.

The organisation acknowledged that inflationary pressures have increased the possibility of an interest rate rise sooner than previously expected, but argued that "the leading indicators show that the UK growth rate can be expected to slow markedly in the first half of this year, and the CML therefore expects that even if there is a rise, the base rate is unlikely to exceed 1% this year."

CML economist Peter Charles adds: "Money market rates have recently moved higher in anticipation of a rise in base rate, and some lenders have recently reflected these increases in their product pricing. Against this backdrop consumer demand may be weaker than we would otherwise have expected.

"Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders. Consequently we believe there will be little change in the level of arrears this year, and we do not anticipate revising our current arrears forecast."

Elsewhere in the CML commentary it says inflation is "not running out of control" and "there is little reason for the Bank of England's monetary policy committee to initiate any marked change in policy. This implies that base rate will remain below 2% until at least the end of next year."

Consumers could be forgiven for thinking the housing market will get back on track this year. Earlier this week news outlets were reporting data from the Royal Institution of Chartered Surveyors (Rics) showing that house price falls have steadied and are set to surge in the spring. Many will also argue that the December figures merely reflect seasonal dips in prices as Christmas and the bad weather combine to dampen the market.

But the Rics figures also showed ongoing low buyer interest, subdued housing market activity and falling prices in December, while the CML data indicates the downward trend is, if anything, becoming more marked. Moreover, the Bank of England's Trends in Lending report for January, released today, shows that mortgage approvals for house purchases fell to a 21-month low of 40,000 in December from 45,000 in November and from a recent peak of 60,000 in November 2009.

In the report the Bank of England wrote that house purchases were "little affected by the severe weather in December".

Any optimism is generally being stoked by commentators with a vested interest in the housing market. More objective economists believe the prospect of rising interest rates and the difficulties first-time buyers face in obtaining a mortgage, coupled with job losses (and ongoing fears over job security) and rising living costs all point to a highly unfavourable outlook for the housing market.

Howard Archer, chief economist at IHS Global Insight, has long predicted that "while house prices are unlikely to collapse, they will fall by around 10% from their peak 2010 levels by the end of 2011". He predicts a total fall of 7% this year.

Mark King

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