Banks' mortgage lending 'in collapse', says BBA critic

Thursday 26th January 2012

The number of mortgage approvals for house purchase in December by high street banks was officially 36,171.

This seasonally adjusted figure, used in its headline report by the British Bankers Association,  showed a slight increase on November, but the unadjusted figure told a very different story – with just 24,285 house purchase approvals.

The difference led to some differences of opinion. Some analysts used the seasonally adjusted figure to say the market had rallied, and others used the lower figure to say it had collapsed.

Nick Hopkinson, director of property firm PPR Estates, said the far lower unseasonally adjusted figure was a true reflection of the market.

He said: “Mortgage lending by the major high-street banks collapsed at the end of 2011 with the number of new loans approved for house purchase falling to only 24,285 across the whole of the UK in December; over 31% down on the average number of loan approvals during the rest of last year.

“This is not just a seasonal dip but clear evidence of the inter-bank lending freeze that the ongoing Euro crisis is causing. Inter-bank lending is crucial to the availability of mortgage finance. The British banks are up to their necks in euro debt and until that systemic problem is properly addressed it is difficult to see any confidence returning to the inter-bank lending market.”
 
According to the BBA, the average house purchase value last year was virtually unchanged from 2010 at £145,200. It said that overall, the number of house purchase mortgages for last year was very similar to 2010, whilst remortgaging was up just 3%.

The BBA also reported that gross lending by the banks, however, reached £9bn in December – the highest monthly level for last year, and up 12% on December 2010.

David Brown, commercial director of LSL Property Services, said: “The mortgage market finished the year with a flourish in December, but it’s difficult to see how far gross lending can increase this year, given the state of the wider economy.

“There has been some welcome positive news, with lenders such as HSBC stating their intent to up their commitment to the mortgage market in the coming 12 months.

“But since the economy is shrinking, and banks and building societies are seeing their funding squeezed by the financial turmoil on the continent, while there might be slight improvements, we shouldn’t see house purchase lending leap up in 2012.

“As a result, the private rented sector will be more important than ever for the UK’s housing market.”

Hopkinson said: “It is increasingly clear that the overall fortunes of UK PLC are inextricably linked to our European partners with the whole economy shrinking in Q4.

“With unemployment likely to increase towards 3m this year and inflation and austerity squeezing households and businesses, house prices and sales volumes will remain under severe downward pressure for the foreseeable future.

“Even if you can find a bank who really has any money to lend at the moment, perfect credit scores and huge deposits remain essential pre-requisites for anyone brave enough to commit to a UK house purchase as we head into 2012.”