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Lending slumps as housing market enters ‘autumn blues’

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Mortgage lending during August dived to a 10-year low as activity in the housing market remained “exceptionally” weak, figures have shown.

A total of £11.4 billion was advanced during the month, 14% down on July’s figure and the lowest level for August since 2000, according to the Council of Mortgage Lenders (CML).

The group warned that the market was heading for a “difficult” second half of the year, with lending volumes likely to remain below the level seen during the last months of 2009, when activity was buoyed as the end of the stamp duty holiday approached.

Figures from the Bank of England’s Trends In Lending report suggested the drop in lending may have been caused by a fall in the number of people remortgaging during the month.

According to predictions, net lending will also remain subdued during September, with lenders reporting a slight fall in the number of mortgages approved for house purchase in August, their lowest level since April 2009.

Problems have been blamed on banks facing higher borrowing costs themselves, as well as an increased risk of homeowners defaulting on their loan. But critics claim banks are charging higher margins in a bid to shore up their balance sheets.

The CML warned that the second half of the year looked set to remain challenging for lenders, as institutions will have to begin repaying government funding which was put in place at the height of the credit crunch.

As a result, the amount of credit that could be advanced to the wider economy will be drastically reduced.

“We face the prospect of a difficult second half of the year. However, the Bank of England is likely to keep interest rates at record lows for longer to support the economy. This will continue to alleviate payment pressures for many borrowers,” commented CML Chief Economist Bob Pannell.

Regardless of the ensuing market unpredictability, homebuyers are still advised to enter the market and engage with their lenders in order to discover what routes of purchase are still available.


Written by Andrew Hodges

September 26, 2010 at 9:35 pm

Posted in Comment, LinkedIn

Tagged with , ,

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