Mortgage lending slumps to lowest level for a decade

Mortgage lending has slumped to the lowest level for a decade as banks and building societies tighten their grip on the housing market.

Mortgages and remortgage advances added up to £136 billion in 2010 – the lowest total since 2000 and almost a fifth (18%) lower than 2009.

Despite lenders advertising headline fixed and tracker rate deals, lenders are tightening their purse strings and competing to win business from each other by cherry-picking the best customers rather than opening the market.

If that was not bad enough, the Council of Mortgage Lenders – the trade body for all the major banks and building societies – is warning that the Bank of England base rate will end the year at about 1%.

Mortgage rates will increase in line with the base rate as lenders pass the extra cost of borrowing on to customers.

Gross mortgage lending in December was about £11 billion, according to the CML, and signalled a slump in lending for the fourth month running. December’s mortgage advances were 6% less than those  drawn down in November.

Bank of England base rate expected to hit 1%

Year on year, lending was down 18% on the £13.3 billion recorded in December 2009.

Lending totalled £34.4 billion in the last three months of 2010, down from £37.9 billion in the previous quarter and 11% lower than the £38.7 billion advanced for the last three months of 2009.

For 2010, annual lending totalled £136.3 billion – down 5% from £143.3 billion in 2009 and the lowest annual total since the £119.8 billion advanced in 2000.

CML economist Peter Charles said: “Money market rates have recently moved higher in anticipation of a rise in base rate and some lenders have recently reflected these increases in their product pricing. Against this backdrop, consumer demand may be weaker than we would otherwise have expected.

“Higher interest rates will also hit the budgets of existing borrowers, although the expected modest rises in base rate will result in a relatively small proportionate rise in monthly payments for most mortgage holders.

“Consequently we believe there will be little change in the level of arrears this year, and we do not anticipate revising our current arrears forecast.”

This is all good news for property investors with a robust acquisition strategy as demand for rental property and hence rental yields will unboubtedly continue to increase.

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