Home loans may get even scarcer says bank boss as funds dry up

Published 30th Sep 2010

The mortgage drought which is crippling homebuyers could get even worse, one of Britain’s most powerful bankers warned yesterday.

Funding, the money which banks need to lend money, ‘will be more scarce and probably more expensive’, predicts Barclays president Bob Diamond.

This is likely to have a knock-on impact on the number of loans handed out and the interest rates which are charged, particularly among smaller lenders who face bigger funding problems.

It comes as the latest figures from the Bank of England show the number of mortgages being handed out continues to shrivel.

This is fuelled by the potent mix of lenders being unwilling to lend to anybody without a big deposit and people being too scared to buy a home, fearing price falls and unemployment.

Just 47,372 people got a house purchase loan in August, the fourth consecutive monthly fall and the lowest figure since May last year.

Paul Diggle, a property economist from Capital Economics consultancy, described the housing market as ‘flagging’.

‘Ultimately mortgage approvals for house purchase are a much more important determinant of prices, and they look set to be very weak for some considerable time,’ he said.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, added: ‘Lack of availability of mortgage finance remains a key factor depressing the housing market, although increasing concerns about the outlook for the economy may also be impacting adversely on buyer interest.’

The Council of Mortgage Lenders warned last week that ‘the golden age of homeowership is over, for the moment’.

In a further blow, the Building Societies Association will today warn the number of interest-only mortgages could plunge if the Financial Services Authority’s proposed mortgage rules are introduced.

Paul Broadhead, head of mortgages, said many lenders could ‘withdraw from this market altogether’ under the changes.

The Bank’s figures also showed soaring numbers of homeowners are remortgaging because they are desperately worried about next month’s ‘austerity’ spending review.

More than 28,000 people switched their loan to a rival last month, the third consecutive monthly rise and the largest number since July last year, according to the Bank of England.

Experts said people are urgently trying to save some money on their mortgage, which is most people’s biggest monthly expense and often eats up more than half their take-home pay.

In June, 25,644 people remortgaged. In July, the number jumped to 27,250. Last month, it increased to 28,042, according to the Bank’s ‘Lending to Individuals’ figures, published yesterday.

Many are deciding to take out a fixed-rate mortgage to ensure they know how much money they need to find every month to pay their mortgage.

One in two people who took out a mortgage in July chose the fixed option, according to the latest figures from the Council of Mortgage Lenders.

Brian Murphy, head of lending at the independent mortgage broker Mortgage Advice Bureau, said there is a ‘clear trend towards remortgaging’, adding the spending review is ‘focusing people’s minds’.

Source: ' Daily Mail '

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