Mortgage market remains stuck in the doldrums

Mortgage lenders have warned once more of the funding gap they face which may impact on the property market for years to come. The Council of Mortgage Lenders (CML) revealed gross lending in the first three months of this year was the lowest since early 2000. While house prices may be rising rapidly in some areas, gross lending of £29.5bn is down 9 per cent on the same period a year ago.


The CML also reiterated its concerns over the funding gap that lenders face compared to the pre-financial crisis years. From 2000 onwards the mortgage market saw a credit boom fuelled by activity in the mortgage backed securities. But with this market still all but closed for business, lenders are struggling to refinance their debts and obtain new funding for mortgages.

The effect of this has been masked by official government support schemes for lenders. However, these schemes are due to end soon, stalling access to new funding and hampering banks’ opportunities to refinance their mortgage book debts.

The CML said: ‘Financial institutions still face the prospect of around £300bn of official support schemes beginning to end from next year, and will need to find alternative funding sources. This will likely limit how much new funding can be made available to the housing market.’

Headline house price figures appear to show the property market is booming but the mortgage market remains stuck in the doldrums. The lending figures from the CML showed gross mortgage lending rose by 24 per cent in March to £11.5bn compared to February, but the organisation said this was a typical seasonal rise and ‘suggests little underlying change’.

Meanwhile, more detailed CML figures on mortgage completions showed loans for home purchases up substantially on a year ago, by 50 per cent, but still at historically low levels. Furthermore, first-time buyers still need to raise an average deposit of 25 per cent and home movers raising deposits of 33 per cent.

But while the mortgage market remains subdued, property reports have seen a dramatic reverse from prices falling by around 17 per cent annually a year ago. Recent reports from the Nationwide, Halifax and Land Registry have shown annual house price inflation at 9 per cent, 5.2 per cent and 7 per cent, respectively. Meanwhile, the Acadametrics house price report said London prices had now surpassed their 2007 peak, averaging £376,605.

However, the bounce back in house prices from their recent lows seen in winter and spring 2009, has been set against a low level of transactions, which can exaggerate price rises, £200bn being put into the economy by quantitative easing, a record low base rate of 0.5 per cent, and banks benefiting hugely from government support.

With the gradually improving economic backdrop and interest rates still low, the CML continue to expect a gentle improvement in market conditions later in the year. However, the longer-term problems facing the market remain and will limit the speed of recovery in the housing market and wider economy.