BoE data highlights "urgent need" for more funding into mortgage market

03 March 2009 / by Rachel Mason
Bank of England mortgage lending data released today highlights the fact that more money needs to be injected into the mortgage market, an economist has said.

Net mortgage lending rose by just £1.1bn in January, down from £2.1billion in December and the £2billion average of the last six months – it marks the smallest increase since BoE records began in 1993 – and according to Simon Rubinsohn chief economist at the Royal Institution of Chartered Surveyors (RICS), it is further evidence that more needs to be done to kick-start mortgage lending.

"Bank of England mortgage approvals data for January continues to highlight the urgent need for more funds to be injected into the mortgage market," he said.

RICS has seen buyer enquiries continue to increase over the past three months, but, says Mr Rubinsohn, unless these buyers are able to get the finance they need, the market will continue to struggle.

"Despite three consecutive monthly increases in the RICS 'buyer enquiries' series, the actual level of new mortgage approvals continues to languish," he said.

The BoE data does, however, suggest some signs of recovery, because although the number of mortgage approvals are still less than half the level they were a year ago, they have averaged at 31,000 a month for the past six, and this could suggest that the slump in mortgage lending may have reached its trough.

But Mr Rubinsohn says the 'disconnect' between buyer enquires and mortgage approvals urgently needs to be addressed.

"The January seasonally adjusted figure of 31,000 was unchanged from the December number and just 4,000 above the November low. Ominously, the non-seasonally adjusted figure hit an all-time low of just 21,000," he said.

"This disconnect between buyer enquiries and actual mortgages approved highlights the inability of many buyers to access the property market at the present time because of the substantial deposits being sought by lenders."

Mr Rubinsohn says that as banks and building societies remain reluctant to lend, especially to first time buyers with smaller deposits, the Government needs to intervene.

"Subsequent announcements by both Northern Rock and RBS indicate that a little more funding will flow into the mortgage market over the coming months but as things stand, this will only boost the available finance by about 10% compared with 2008," he said.

"This demonstrates the need for the Government to make speedy progress with its plans to introduce the guarantee scheme for mortgage backed securities as announced in the Pre Budget Report."

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