Mortgage lending by the high street banks fell by 60% in the last year, according to the latest figures released by the British Bankers Association. In November 2007, more than 45,000 new home loans were approved: a year later it was less than 18,000.
Shrinking market
Not only was lending down from a year before, but market activity also fell on a monthly basis. David Dooks, the BBA's statistics director, explains: "High street banks are still providing two-thirds of all new mortgage lending, although the overall market continues to shrink. The 1.5% November reduction in bank rate caused lenders to re-assess product ranges and borrowers to re-consider future borrowing costs, so consequently there was another drop in market activity.
"Volumes of mortgage approvals reached new lows and, with house prices still falling, the encouragement of lower costs had not filtered through by the month end, largely because people remain concerned about the impacts of the rapidly slowing economy on their personal finances."
No surprise
The BBA's figures were no surprise and confirmed those from other finance sector bodies. A 51% fall in mortgage lending in November compared to a year before had been reported by the Council for Mortgage Lenders. There was also a 22% reduction in gross lending from the levesl of just a month earlier.
The CML said that while it was normal for there to be a fall in activity in October, the level this year was "considerably larger than usual reflecting the market disruption and continued deterioration of confidence in the economy".
In the most recent figures produced by the Building Societies Assocation – for October – there was a reduction in mortgage lending of 45% against a year before. The BSA's director general, Adrian Coles, says: "With the depressed state of the housing market, it is no surprise that mortgage lending by societies remains low..... With confidence in the market so restrained, homeowners are choosing to stay put rather than move, while first time buyers continue to wait for further falls in prices."
Weak outlook
The CML warns that lending may not improve quickly in 2009. Its director general Michael Coogan says: "In looking ahead to the coming year, the housing market will remain extremely subdued and net mortgage lending is likely to turn negative. Repayment problems will worsen against the backdrop of rising unemployment, but lenders and government are working to try to reduce the negative impact on borrowers.
"Recent glimmers of light in terms of government intervention to improve conditions to support new lending are helpful, but more will be needed. 2009 will be a challenging year, but borrowers who remain in employment will see some benefits in the form of lower mortgage rates."
More savings – or less?
Reflecting the level of uncertainty in the market, there were conflicting reports from mortgage lenders on the levels of savings. Earlier in 2008, building societies benefited from a lack of trust in banks and they received high inflows of savings – much of it transferred from banks regarded by consumers as higher risk. But in October 2008, building societies reported falling savings levels, as depositors apparently prioritised repaying debt over saving.
Yet the British Bankers Association reported that in November there was a big increase in savings – as people reclaimed savings from failed Icelandic banks, depositing them with British banks.