Mortgage Lending Falls By Almost 50 Per Cent

13 May 2008 / by Joy Tibbs

While the Council of Mortgage Lenders (CML) has described mortgage lending in March merely as “subdued”, its figures for the first quarter show that loans taken out were at their lowest level for more than 30 years.

The number of agreed mortgage loans fell marginally to 46,500 in March compared with 47,200 in February. However, the annual decline is a more dramatic 48 per cent, with loans recorded at 89,000 in March 2007. It claims that: “The continued decline in lending for house purchase is partly due to the shortage of funding in the mortgage market as a result of credit market conditions.”

First-time buyer mortgage loans dropped one per cent on a monthly basis to 17,800 compared with 17,900 in February, and 45 per cent from 32,500 last March. The average first-time buyer borrowed 89 per cent of the property’s value and 3.35 times their income in the first quarter of 2008, compared with 90 per cent and 3.32 times their income in the first quarter of 2007.

Meanwhile, new loans for existing homeowners dropped two per cent month-on-month to 28,700 from 29,300, with a 49 per cent drop from 56,300 in March 2007. The average home-mover’s mortgage in the first quarter was for 72 per cent of the property value and 2.99 times their income, down from 73 per cent and 3.01 in the first quarter of 2007.

Gross mortgage lending in the first quarter was £75 billion, compared with £83.9 billion for the same quarter last year. CML’s figures show that the 142,000 mortgage loans taken out in the first quarter was below the 146,000 recorded in 1992, when the UK was in a state of recession. The figure is also barely higher than the 140,000 reported in the first quarter of 1975.

Remortgage figures again showed some resilience, rising in the first quarter to £33.3 billion and accounting for 44 per cent of total gross lending, compared with a 35 per cent share in the previous quarter. According to the CML, this represents the remortgage sector’s largest share for three years and “is likely to be driven by the large numbers of borrowers exiting short-term, fixed-rate mortgages.”

And CML director general, Michael Coogan, predicts further strife for the mortgage market in the near future. He said: “House purchase transaction volumes will continue to deteriorate in the coming months as recent approvals data from the Bank of England has shown.

“Since the introduction of the Special Liquidity Scheme, there has been a slight improvement in credit market conditions with LIBOR moving in a more helpful direction. But LIBOR still remains high relative to the Bank rate and any improvement in credit market conditions will take time to feed through into the mortgage market.”

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Written by Editorial Team