Blame the Weather

by Mark Johnston

Maybe, not entirely though. The Council of Mortgage Lenders (CML) has recently reported that lending to homeowners has fallen by 29% in January 2011 compared to December 2010

The data highlights that only 28,500 loans were paid in January 2010, a drop of 12%, when compared against the same period last year. These loans are worth £4.2 billion, this is a drop of 26% by value compared to December.

So what went wrong. The “unusual combination of factors” quoted by the CML were not attributed to seasonal factors alone. The CML point to a further combination of factors; lack of confidence in the slow growing economy, a pending new government budget and rising inflation and tax measures.

“With the effects of last year’s government spending cuts beginning to bite, and rising inflation and tax measures putting pressure on household budgets, potential house-buyers are likely to have been discouraged,” the CML said.

“This, coupled with December’s extreme winter weather, and uncertainty over future interest rate rises, has led to a lack of movement in the mortgage market.”

These factors, when linked to December’s adverse weather and market uncertainty over interest rates, resulted in a low performance in the mortgage market. There was a significant rush, at the end of December, due to the stamp duty concession also attributing artificially inflated figures for that period.

Whether there is significance in these attributing factors, the fact remains that compared to the earlier decade, this represents a massive slump.

Thankfully, 10,500 new first time buyers stepped into the market in January and the average deposit is falling. This is just below 20% currently; this is a good drop for the first time in two years.

The CML noted that the market is likely to remain flat and remortgage activity is likely to continue to be buoyant (22,100 in this period). With take home pay and household budgets under strain, new tax measures predicted soon, inflation pressures, VAT increase and a weak sterling all indicate that 2011 won’t see much progress in this area.

Howard Archer of HIS Global Insight noted recently that “The very weak CML mortgage advances data for January indicates that the housing market started 2011 on the back foot and supports our belief that house prices are headed down further over the coming months,”.

He went on to comment that “Further bad news for the housing market is the now strong possibility that the Bank of England will start to raise interest rates within the next few months to counter above target and rising inflation,”. This as previously reported is looking more and more likely.

Overall, the weak message from the CML clearly shows that the housing market has started on the back foot in 2011 and without significant new ideas or better ways of lending, it’s looking more likely that housing prices will fall further down over the next few months.

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