Buy-to-let sector active, says BBA‎

Annual growth of the banks' net mortgage lending was 1.6% in September, remaining ahead of the 0.6% for the whole mortgage market in August, reveal the BBA.

Related topics:  Mortgages
Millie Dyson
25th October 2011
Mortgages
BBA statistics director, David Dooks said:

"There was a small net increase in business lending to the non-financial sector in September. Firms are continuing to build up cash reserves where possible, while concerns about the economy may be putting some investment intentions on hold.

“Households are limiting their borrowing in the face of unemployment concerns and pressure on household finances amid general economic uncertainty.

“A modest stimulus to gross mortgage lending is coming from the buy-to-let sector as rental yields continue to improve.”

Unsecured credit contracted by 1.2% over the past year and personal deposits rose by 3.8%. In the first eight months of 2011 deposits and savings have increased by £13.5bn compared with £21.2mn in the same period of 2010

Mortgage lending

Gross mortgage lending of £8.4bn in September was stronger than August and 7% higher than in September 2010.

The slight turn up in recent months in both house purchase and remortgaging approvals has led to stronger gross mortgage lending in August and September but as capital repayment continued at a high level, net mortgage lending increased by just £0.8bn in September.

Number of approvals

House purchase approvals were lower than in August but 8% higher than in September 2010. The average value (£142,600) was about the same as a year earlier.

Reports suggest that mortgage activity may have been stimulated by some growth in the buy-to-let market as rental yields improve. The number of remortgage approvals in September was lower than in August and much the same as in September 2010.

Approvals for other secured lending continue to be fairly stable, as homeowners use the equity value in their homes as security for borrowing.

Unsecured lending annual growth rates

Although retail sales rose slightly in September quarter-on-quarter sales declined and demand from consumers for unsecured borrowing remained weak. Repayment of loan and overdraft borrowing continues to outweigh new lending.

Borrowing on cards has expanded, but only slowly over the past two years (and largely relates to the interest added to accounts, because monthly spending is regularly more than offset by repayments).

Business borrowing annual growth rates

There was a moderation in the average decline in lending to nonfinancial businesses. In the third quarter of 2011 the average net repayment was reduced to £80mn per month compared with an average fall of £1,800mn per month in Q2.

Meanwhile businesses are reported to be holding on to cash reserves.

Jonathan Moore, director of Easyroommate.co.uk, comments:

“The recent improvement in gross lending may seem like welcome news to buyers, but the increase has more to do with buy-to-let landlords taking advantage of the current rental market than a much needed surge in lending to first-time buyers.

"Strict lending criteria and absurdly high deposit requirements are continuing to keep mortgage finance out of the hands of the average first-timer, and this is flooding the private rented sector with demand.

"Each month there are 17,000 more frustrated buyers than before the downturn having to rely on rental accommodation because they are unable to buy. This is driving up competition for accommodation in both the flatshare sector and the wider rental market.

"For many investors, these conditions are too attractive to ignore, and we are seeing growing investment in buy-to-let.

"While this may well alleviate some of the pressure on the current stock of rental homes, the supply will have to increase at a much faster rate to match growing demand and limit further rent rises.” 

Duncan Kreeger, chairman of West One Loans, said:

“If you take inflation into account, the mortgage market is shrinking in real terms.  Embattled high street banks are looking to recoup equity.  They want to lend cautiously, to wealthier borrowers with higher deposits. 

"That’s not only affecting first time buyers, it’s also hitting potential buy to let lenders.  Bridging lenders are filling the mortgage void left by the retreat of high street lenders from the market. 

"While annual net lending has increased just 1.6% in the residential market, the West One Bridging Index shows net bridging lending has shot up 53% over the same period. 

"At the moment, bridging finance is the lifeboat many BTL borrowers in particular are turning to.  But if the economy nosedives over the winter, the market for borrowers with small deposits could enter a state of near paralysis.”

Richard Sexton, director of e.surv chartered surveyors, said:

“The mortgage market is doing its best to stagger on.  The ailing economy is entering a state of rigor mortis, and the crisis afflicting Europe makes any resurrection of growth look unlikely. 

"The temptation for lenders to pull back from the market and recoup equity over the winter is becoming overwhelming. 

"First time buyer numbers have fallen to their lowest since November 2010, and purchase approvals with a deposit of 25% fell to their lowest level in six months in September, both of which are tell tale signs of a struggling mortgage market. 
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