Mortgage demand remains weak

The annual growth of the banks’ net mortgage lending was 2.2% in April, remaining substantially ahead of the 0.7% for the whole mortgage market in March, reveal BBA.

Related topics:  Mortgages
Millie Dyson
25th May 2011
Mortgages
Unsecured credit contracted by 1.2% over the past year, but over the same twelve months, personal deposits rose by 3.8% with savings in ISAs increasing by £9.1bn in the year to April 2011 compared with £6.6bn in 2010.

mortgage lending

Gross mortgage lending of £7.9bn in April was unchanged over the recent six month average but 5% lower than gross lending in April 2010.

Despite the weakness in both house purchase and remortgaging approvals gross mortgage lending is stable. With repayments continuing at a fairly high level, net mortgage lending increased by £1.3bn in April.

number of approvals

House purchase approvals were slightly lower than in March and 18% lower than in April 2010. The average value (£145,100) was 1.1% lower than a year earlier.

The numbers of remortgage approvals in April were 12% lower than the previous month and 7% lower than in April 2010 as fears of interest rate rises receded. Approvals for equity withdrawal continue to be subdued and were 22% lower than April 2010.

unsecured lending annual growth rates

Demand for unsecured borrowing remains at a weak level. Stronger reported retail
sale volumes in April, suggest that cash, not credit, is being used for spending.

Borrowing on cards has expanded over the past two years (largely relating to the interest added to accounts, because spending is regularly more than offset by repayments) however numbers of transactions showed some increase in April. New personal loans in April were in line with the recent trend.

company borrowing annual growth rates

Net lending to businesses in April continued to be weak as demand remained subdued and repayments exceeded gross lending.

BBA statistics director, David Dooks said:

"Individuals and businesses continue to save more, pay off debt and borrow less as uncertainty about the economy has entrenched a 'wait and see' attitude. However, banks are still able to meet the need for home loans even though demand remains weak. Businesses - SMEs in particular - are using cashflow and deposits to fund expenditure rather than taking on more borrowing.”
 
Simon Rubinsohn, RICS chief economist, said:

"BBA data released this morning continues to show a flat trend in the volume of mortgage approvals. This is broadly consistent with the results of the latest RICS Housing Market Survey which suggested that sales expectations were only marginally positive for the coming months.
 
"The BBA highlights a lack of demand for mortgages as a key factor influencing the level of approvals at the present time. We would not disagree that it is one factor but the cost and availability of finance for first time buyers remains the bigger problem in our view.
 
"Critically, the low level of transactions in the sales market is resulting in more activity in the private lettings markets where rents are continuing to increase as demand outstrips supply. In addition, it is having a bearing on high street sales with fewer property purchases resulting in less related spending on durable goods.
 
"Given the challenging picture facing the consumer, we believe that the MPC is right to hold fire on interest rates for the time being."

David Brown, commercial director of LSL Property Services, said:

“Mortgage approvals have fallen in number and in size over the last year and this is fundamental to the UK’s property market. Lending is constrained for anyone with a modest deposit and this is keeping purchase prices down.

"Property transactions last month were at their lowest April level since 1995 and this was driven by the difficulty of obtaining mortgage finance for house purchases.

"This has been great news for landlords, who are currently enjoying record high rents as those unable to make a purchase are forced to remain in the private rental sector, where the limited supply of accommodation and the sharp increase in demand over the last year have boosted rental prices. Slow mortgage lending is at the heart of the current trends in the property market.

“However, the dramatic fall in mortgage approvals when comparing this April to April 2010 are exaggerated. The extra Bank holiday for the Royal wedding and a succession of short working weeks meant activity was artificially subdued last month. While the picture is hardly rosy, it’s not as bleak as it seems at first glance.”

David Whittaker, managing director of Mortgages For Business, said:

“Overall consensus among the general mortgage borrowing population is ‘let’s wait and see’ so lending will continue to bump up and down for the foreseeable future. A lot of owner-occupiers are paying down their mortgages and putting disposable income into savings, despite the feeble savings rates, because of their uncertainty over the future of the economy.

"One section of borrowers sitting relatively comfortably though is professional property investors. Buy-to-let finance is back in a big way and the more complex the deal the more return an investor is likely to see.

"Complex deals aren’t for everyone though and there are plenty of other deals to be had but with so many having to rely on the private rental sector and with that trend unlikely to change for many years, professional landlords have a real opportunity to capitalise on the situation”

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

“The drop in house purchase lendin
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