Mortgage lending by banks and building societies rose to 24,300 in February, up 4% on the previous month, according to new figures from the Council of Mortgage Lenders. Despite this latest bright spark for the recession-hit housing market, activity in the sector still continues to be a concern.
With positive reports hitting the headlines in recent weeks, the six consecutive interest cuts by the Bank of England appears to have made an impact for some borrowers, as interest rates have spiralled to their lowest in five years.
Michael Coogan, Director General of the CMI, explained that although this activity marks positive movement, there’s still need for caution.
“We are not convinced that underlying trends have shifted sufficiently to change our forecasts for mortgage market activity in 2009, but there are some positive signs for later in the year,” said CML director general Michael Coogan. “Some large banks are making more funding available through enhanced lending commitments, which is helpful but will not satisfy consumer borrowing demand on its own.”
Since the property boom in 2007, when reckless lending was at its height with 125% mortgages being approved by some lenders, house prices have fallen by 20%. Experts have warned that first-time borrowers need to be given access to mortgages in order for the situation to change.
But first time buyers are still struggling to get a foot on the ladder, with the average deposit required for a property currently at 25% - no mean feat at a time when savings are suffering. So it’s perhaps no surprise that first-time purchases are down 55% since the same time last year.
A recent proposal to cap the amount that banks can lend to potential borrowers by Lord Turner of Ecchinswell, Chairman of the Financial Services Authority, isn’t doing much to reassure those in the market either. Banks and building societies are concerned that the new proposal will have a negative effect on the recent, albeit small, signs of recovery.