Blog
Mortgage Market - Closed for Business
29th September 2008
The latest data on the value of UK mortgage lending to the property market is simply staggering - Banks and building societies lent just £143m in home loans in August, just 5% of July’s lending figure and only 2% of the lending in August 2007. The market for home loans has imploded and house prices will take a complete battering unless there is a rebound in mortgage loans
It used to be said that falling house prices are good for improving affordability and giving first time buyers some sense of hope that they can take their first tentative steps onto the property ladder.
But it is becoming obvious that despite falling prices, property is becoming even less affordable and the reason is clear - getting a mortgage is one tough ask.
The huge drop in new mortgage lending is a symptom that people looking for fresh mortgage finance are having an incredibly tough time. It is not simply the mortgage interest rate on the loan, it is whether the loan is available and the size of the deposit required.
Three of the banks most closely associated with the buy-to-let market - namely Lehman Bros, Northern Rock and Bradford and Bingley have all fallen by the wayside.
Until the major banks have taken sufficient steps to re-capitalise either by attracting new deposits or seeking new injections of capital from domestic or overseas investors, then we are very unlikely to see any improvement in the willingness of banks to lend to eachother.
The mortgage market has more than stalled - to all intents and purposes, it is closed for new business. And this spells disaster for thousands of people who livelihoods are inextricably linked to the fortunes of the property sector.
The headlines today are dominated by the nationalisation of Bradford and Bingley. But the real news today is the collapse in mortgage lending. And there was some more bad news today, the LIBOR rate - the interest rate that the banks charge to each other for funds has started to rise again.
This is the central indicator of the credit crunch and it does not look at all good.
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.