Worries Grow of Mortgage Collapse

by Mark Johnston

Fears are growing in the financial services industry of a mortgage lending collapse. Recently the British Banking Association (BBA) announced that less than thirty thousand loans were approved in November which is down again from the 30,698 agreed in October.

Many experts are predicting that the UK housing market will continue to struggle as lenders agree fewer and fewer home loans. The number of mortgages per month is now at its lowest levels in ten years and analysts fear that this may spark the housing collapse that many have been expecting over the last few months.

The figures which are published by the British Banking Association (BBA) look at figures from the largest high street lenders such as the public owned Northern Rock, and RBS together with Barclays, HSBC and Santander. All the lenders combined only lent just over £1.46 billion which is the lowest amount since the middle of 1999.

The UK economist at IHS Global Insight, Howard Archer said: “The BBA data point to the housing market ending 2010 very much on the back foot, where we expect it will remain for much of 2011. Activity remains stuck in the doldrums, which seems highly likely to maintain downward pressure on prices. Critical to the development of house prices over the coming months will be the amount of houses coming
onto the market, mortgage availability, and how well the economy and jobs hold up as the fiscal squeeze increasingly kicks in.”

Last month gross lending increased slightly but borrowers taking advantage of the low interest rate drove the net figures down due to them paying back larger proportions of their loans.

This trend to pay off consumer debt was backed up with new figures showing a reduction in credit card and personal loan balances. The figures were published by the British Banking Association (BBA) and showed that borrowers had paid back more debt that was lent which resulted in a reduction in the overall outstanding consumer debt in the UK.

Mr Archer went on to say: “The further net repayment in consumer credit in November indicates that consumer appetite for taking on new borrowing remains limited while there is an ongoing desire of many consumers to reduce their debt,”

Commercial lending to business increased by around £500 million although it had been in decline so it was welcoming news to many companies who have been starved of credit which has made it difficult to grow in recent years.

“The marginal rise in net lending is a move in the right direction,” Mr Archer said. “However, it does not materially ease concerns that on-going tight credit conditions are still a significant handicap to economic activity, particularly for smaller companies.”

This all adds to the increasing unease of the UK mortgage market. With mortgage approvals at less than half of the 60,000 a month seen back in 1997, experts are now concerned that we may be on the precipice of a mortgage market collapse.

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