CAN'T LEND? WON'T LEND! Fewest New Mortgages Approved for Ten Years; 930,000 Homes for 930,000 Homes for Sale - Just 80,000 Sold; Lloyds Lends [Pounds Sterling]43bn Less to Homebuyers; House Prices Could Fall 23 PC
Byline: JAMES CONEY and LAUREN THOMPSON investigate ...
MORTGAGE lending in August was the lowest for a decade. Banks insist their hands are tied by regulation. But what is the truth behind the mortgage famine? JAMES CONEY and LAUREN THOMPSON investigate...
THIS week the Council of Mortgage Lenders (CML) reported that the amount of money dished out to homeowners in August was the lowest for a decade.
It plunged to [pounds sterling]11.4 billion from [pounds sterling]13.3 billion in July - a fall of 14 pc. The number of people buying a house fell by 5,000 between July and August. And the number remortgaging is down dramatically too.
WHAT'S BEHIND THIS?
THE CML says the supply of credit is 'limited' - meaning there is less cash available to pay for new mortgages. Banks traditionally raise cash from each other to lend as mortgages, but this has dried up.
And banks are paying such pathetic rates to savers that this supply of money has also been reduced.
Savers who are reluctant to put their cash in accounts paying as low as 0.08 pc after tax (0.1pc before) are instead turning to the stock market. But it is not just the supply of new loans that is hampering the mortgage market. There is a dearth of homebuyers too.
Property expert Rightmove says that on average each of the estate agents it monitors are confronted with a record 79 unsold properties. At the beginning of 2010 the number was 63.
The future of house prices is uncertain - which could dissuade anyone looking to take out a larger loan.
Halifax says that since January house prices have fallen in four months and risen in four.
WHAT DOES THE FUTURE HOLD?
THINGS are likely to get worse before they get better. From 2011, the mortgage market is facing a [pounds sterling]300billion black hole when the Government's rescue deals for banks and homeowners end. To begin with, banks face a series of deadlines to repay [pounds sterling]165 billion from the Bank of England's special liquidity scheme.
The removal of credit guarantees is likely to make banks more nervous about lending to each other.
Uncertainty in the job market is another threat. As public sector job cuts start to be made, it is likely further to stifle the property market.
Bob Pannell, chief economist with the CML, says: 'The extent of the imminent public sector spending cuts has become more clear. Consumers remain cautious and household incomes will remain under pressure.'
SO WHO IS LENDING?
TODAY [pounds sterling]9 out of every [pounds sterling]10 of mortgages is lent by Britain's five biggest banks and Nationwide.
Yet in 2009 the amount of money lent by Britain's biggest mortgage lender, state-owned Lloyds Banking Group, collapsed from [pounds sterling]78 billion to [pounds sterling]35 billion - a fall of 55pc.
All the major banks and building societies significantly cut the amount of money they gave out as home loans from 2008 to 2009.
Santander lent a quarter less - cutting the amount of loans it issued from [pounds sterling]35 billion to [pounds sterling]26 billion. Meanwhile, many of Britain's smaller lenders - mainly building societies - have been hamstrung by the credit crisis.
Where once they were able to offer deals that competed with some of the best rates, now some are not lending mortgages at all.
They were hit with spiralling bills for bailing out failed banks and tougher rules on how much money they needed to have in their coffers.
Daoud Fakhri, analyst at researcher Datamonitor, says: 'Most people would have expected building societies to emerge from the credit crisis in a stronger position than banks. It seems that although they didn't engage in high-risk lending they have suffered.'
Even those banks that are lending are being selective. Mortgage brokers say vast numbers of homeowners are being turned down for top deals, as they do not meet a bank's precise requirements. …