Funding gap causes mortgage lending to dive

Published 21st May 2010

Gross mortgage lending plummeted 12 per cent between March and April, as lenders urged the coalition Government to address the funding gap they say is holding them back.

Mortgage lending fell to £10.2 billion last month — the lowest April total since 2000. The Council of Mortgage Lenders said that it had expected a slight decline because of Easter, when fewer transactions normally take place, adding that the figure remained broadly in line with its forecast of £150 billion in lending for 2010 as a whole.

However, the CML, which is the trade association for the residential mortgage lending industry, added that a funding gap between what banks wanted to lend and what they can afford to was set to worsen in the next few years as support schemes such as the Special Liquidity Scheme are withdrawn from next year.

Lenders say that since wholesale lending — what banks lend to each other — collapsed in the credit crunch, government support has provided only 25 per cent of what lenders could offer previously.

Michael Coogan, the director-general of the CML, said: “We welcome signs in the coalition agreement that some housing priorities are on the Government’s radar. But we still do not know how the incoming Government plans to address the funding gap looming over the next few years in the mortgage market.

“It is important that the new Government grasps this nettle. Unless funding issues are addressed, any recovery in lending may well be curtailed as the repayment date on the support schemes gets closer.”

Lending fell at the beginning of this year after a spike in December in anticipation of the end of the stamp duty holiday and the rise of VAT.

In March it rose 24 per cent, reaching £11.5 billion, up from £9.3 billion in February. However, Paul Samter, an economist for the CML, cautioned that the housing and mortgage markets remained “quiet and subdued”.

In a statement issued today, Mr Coogan added that although there were signs of increased mortgage availability with higher loan-to-value mortgages becoming available and falling rates, it remained a difficult market, particularly for first-time buyers without large deposits.

“The imminent fiscal squeeze will drag on the speed of the recovery, which in turn will slow the pick-up in the housing market.”

Source: ' Times '

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