2010 Mortgage Lending Increase But Still a Poor Performance

by Mark Johnston

According to the Bank of England, mortgage lending rose at the end of 2010 by around £800,000. Even though this is better than previous months, experts are still predicting a very slow decline on the UK housing market which will see prices slump throughout the new year with some predictions of up to 10% of the value of property being wiped out.

Chief economist for IHS Global Insight, Howard Archer said: “While the Bank of England data shows that mortgage approvals edged up in November, they remained at a very weak level and the modest increase does little to dilute the belief that house prices will remain under downward pressure in the early months of 2011 at least. What it does suggest is that house prices are more likely to trend modestly downward rather than crash.”

Although the new figures showed that they were slightly above the six monthly average they still show a slow down in figures from the previous month. The good news was that the number of mortgage approvals were up. November figures were 48,019 whilst the previous month was 47,315. Overall though, the figures are still disappointing when looked at over a longer period. The same time in 2009 saw a peak of 59,019 resulting in a 18.5% decrease over the year.

Mr Archer went on to comment by saying: “The Bank of England November mortgage data still points to a housing market bobbing around in the doldrums. We see little reason to change our view that house prices will trend down gradually to lose around 10% from their peak 2010 levels by the end of 2011. This suggests that house prices will fall by around 6% in 2011, given that house prices are already around 4% below their peak 2010 levels (according to the Nationwide’s data). In our view, the housing market has got little going for it at the moment, apart from low mortgage rates – and that is if you can get a mortgage,”

The head of a leading mortgage broking firm highlighted that the recent figures show a trend towards a cautious market. Home owners appear to be concerned about the potential rise in interest rates which may be triggered by a high inflation which may be worsened by recent VAT increases.

Brian Murphy, the head of the mortgage broker firm said: “Increasingly, the belief is that the bank rate will rise this year and not next. The remortgage spike also reflects the fact that there are currently some exceptional mortgage rates available at lower loan-to-values and people are cashing in while they can. Borrowers are aware that the clock is ticking on interest rates and do not want to be caught napping.”

The news is another blow to home owners who are worried about potential rate increases and the lack of good mortgage deals for those with little equity. Borrowers who purchased their home at the height of the property bubble have little to be happy about. Falling house prices and the difficulty of getting a new lending may push some families into negative equity or even mortgage default.

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