Mortgage Lending Falls Again

Mortgage lending fell to its lowest level for over two and a half years in December.

Figures from the Council of Mortgage Lenders (CML) showed that homeowners borrowed £22.6bn in December – 25% less than in November, and 21% less than in December 2006. For the whole of 2007 mortgage lending was just short of £1bn per day at £362bn, a 5% increase on the £345bn lent in 2006.

The CML said that the credit crunch was the main cause of the fall, having lowered consumer confidence and put a limit on lenders’ funds.

Director general of the CML, Michael Coogan, said: “The credit crunch moved into its fourth month in December and continued to constrain the cost and availability of funds to lenders and, in turn, the cost and number of mortgage products available to borrowers. Looking forward, the recent decline in interbank lending rates and the prospect of further reductions in base rates in 2008 should provide some help to the market, although lending volumes are likely to remain weak for the next few months.”

The past few months have seen the credit crunch change attitudes of lenders. The Building Societies Association say its member were quick to react to the credit crunch, reining in spending and lending.

Mortgage lending by building societies was just down in 2007 at £52.1bn, compared with the £52.8bn lent in 2006. Net lending, without redemptions and repayments, fell by 21% to £12.6bn.

Andrew Montlake, of independent mortgage broker Cobalt Capital, said: “As a mortgage broker, the December lending figures hardly made me dance with joy, although I agree with the CML that the outlook is more positive. There is a very good chance of an interest rate cut in February, and at least one more during 2008, which will incentivise borrowers and restore much needed confidence. At the same time, falling Libor and Swap rates are bringing succour to the banks. We’re by no means out of the woods yet but I’m confident things will be a lot rosier by Spring.