When one considers the hearty supply of gloomy economic news, most recently evidenced by the downgrade of RBS, Barclays, HSBC and Lloyds by Moodys, it seems extraordinary that property prices can be heading anywhere other than south.
And it’s not just external economic factors which are causing problems for the property market. The government seems intent on throwing up ever greater fiscal hurdles – most recently by failing to extend the stamp duty holiday for critical and beleaguered first time buyers. The CML’s data shows this caused transactions to plummet by almost 48% in April, although LSL has suggested May saw transactions return to close to where they were last year.
It would seem to follow logically that the heavy buffeting taken by UK lenders would lead mortgage market activity to suffer dramatically, as liquidity and confidence in the finances of borrowers dries up. But in fact lenders have successfully overcome these problems to deliver consistent growth in gross lending over the last 12 months. According to the CML lending by value since May 2011 has increased by 2.6%.
This is a remarkable achievement and is testament to the extent to which lenders have shown themselves to be innovative and proactive in maintaining mortgage market activity. Lenders during the last year have been prepared to offer finance and at unprecedentedly affordable level, taking full advantage of the low base rate and the Bank’s ongoing commitment to a dovish monetary policy. Deposit requirements may be relatively high, but where borrowers are able to show they have sustainable finances, lenders have been prepared to do what they can to move the market forward.
It’s unreasonable in the extreme that lenders have been simultaneously criticised for their pre-crisis activities and for being overly cautious in the current market. Those who bemoan that lending is still far from the levels seen in 2007 – gross lending in April this year was 62% lower than in the same month five years ago – are missing the point. We aren’t going to see lending levels skyrocket in the near future and if they did it would be a cause for major concern. The responsible path out of the crisis is not to seek a return to the way it was pre-crisis, but to make gains that are possible and sustainable.
Unlike the United States, we haven’t seen a rash of negative equity in the UK as house prices have been held up by the limited supply of property and lenders’ refusal to panic in the face of adversity. It’s not a message one hears very often, but it could have been very different if mortgage finance had dried up entirely in the last year and lenders had retreated into their shells hoping to ride out the impeding disaster in the Eurozone. Not enough people are saying it, but the UK has plenty of reasons to be grateful for the excellent work being done in its mortgage lending industry.
