Data just released by the Council of Mortgage Lenders (CML), has shown that gross mortgage lending has dropped by 60% since February 2008. The estimated £9.9 billion of mortgage lending in February 2009, is down 15% on the £11.67 billion for the previous month. Although February is typically the weakest month for mortgage lending, the CML would usually expect a smaller 3-4% drop between January and February.
With the credit crunch, banks and building societies have less funds available for mortgage lending and have tightened up their lending criteria. As people have less faith in the banks and building societies, they are choosing to place their saving with the Government backed National Savings and Investments. The director general of CML, Michael Coogan, has said that “Retail savings are now the predominant source of funding for mortgages. But banks and building societies have seen savings ebb away to National Savings and Investments, which has a negative impact on their ability to lend.”
The lack of confidence in the banking system, has led to the National Savings & Loans revising its Net Financing forecast for 2008/09 from £4 billion to £11 billion. This increase, stems from an increase in business due to the turbulence in the financial markets. The government is encouraging banks and building societies to lend more, but they do not have the funds available. Speaking on this, Micheal Coogan said that “This is yet another example of fractured policy. There are now fewer active lenders in the market, but the government wants them to lend more. At the same time, the government’s own savings institution is sucking away the funds that would enable them to do so. Until funding improves, the capacity of lenders to lend will remain constrained.”
The Council of Mortgage Lenders’ members, which consist of banks, building societies and other lenders, undertake approximately 98% of all residential mortgage lending in the UK. During 2008, total lending was £256.4 billion, a drop of 30% on the £363.7 billion lent during 2007. With the bleak economic outlook, the CML predicts that there will be £145 billion gross mortgage lending in 2009.