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News: Weekly News Round Up - Lending Down But House Prices Up

Fri, 29 May 09

Depending on where you read your news, latest figures from the British Bankers’ Association surrounding mortgage lending offered both a bleak and uplifting picture of the UK housing market.

According to The Times the figures, which showed a 4% rise in the number of new mortgages between March and April, signal “signs of recovery in the housing market.”

Sky News’s website opted for a different tack, instead focusing on the annual fall of 15.5% between April this year and last year, a far less inspiring figure.

While figures relating to the number of new deals mortgage are being left open to interpretation the net lending figures, which were also released by the BBA, show the clear, inescapable truth – the housing market is in dire straights.

Net lending during April fell to the lowest level in eight years and, according to Liberal Democrat Treasury spokesman Vince Cable, “is a further sign of the unease people ware still feeling about the state of the economy.”

He added:The combination of a bursting housing bubble along with concerns about rising unemployment, is inevitably impacting mortgage lending."

This is a view supported by BBA statistics director David Dooks. He said: “Households' uncertain financial circumstances not surprisingly continue to dictate consumer behaviour, both in the housing market and in generating only low demand for new personal loans."

Across the media this week there was a similar consensus regarding the remortgaging figures. These reached a ten year low in April, a fact that not even the unusually upbeat Times could argue shows a recovery.

The number of people remortgaging to a better deal fell for the fourth month in a row during April to hit a near 10-year low.

Just last week the Council of Mortgage Lenders released similarly downbeat figures for gross mortgage lending, which was down in April and down 60% over the previous 12 months - see Home News 22 May 2009.

Regulation of the mortgage sector is unlikely to make borrowing any easier, but should at least ensure that the risky borrowing carried out over the last few years is curtailed.

This week the Association of Mortgage Intermediaries launched a consultation among mortgage advisors surrounding plans being mooted by the Government to toughen up regulation in the sector.

Robert Sinclair, Director of AMI, said: “It is time for the industry to come together. We have an ideal opportunity to develop solutions and provide input to the FSA that provides consumers, advisers and lenders with a market that works equally well for all parties. We would encourage all our members, and any other interested parties, to contribute to this key debate. This is a real opportunity for members to shape the future of their industry.”

Among issues the AMI is hoping its members will address are the question of affordability when taking out a loan and fees charged.

Given the public unease and difficulty in securing a mortgage deal it is no wonder that the house building industry is in trouble.

Latest figures released by the Royal Institution of Chartered Surveyors show that 45% more surveyors reported a fall rather than a rise in construction workloads. This is the fourth consecutive quarter the figures have been in the negative.

Banks are unlikely to make lending any easier if latest advice from the Financial Services Authority is followed.

The regulator’s stress test for the banking sector indicates that banks should be factoring in a worst-case scenario of a 50% slump in prices from the 2007 peak as well as a fall in GDP of 6%.

This would make the current recession easily the worst the UK has faced for 60 years and also assumes that unemployment could peak at 12% and the UK economy may not grow until 2011.

The FSA said in a statement: “The current stress scenario models a recession more severe and more prolonged than those which the UK suffered in the 1980s and 1990s and therefore more severe than any since the Second World War.”

Can prices really slump by 50%? Not if the Nationwide’s latest figures are to be believed. After a week of depressing news, the latest figures from the building society show that perhaps The Times was right to say there are “signs of recovery in the housing market.”

According to the Nationwide house prices rose by 1.2% in May compared with April. This has meant the annual house price fall has eased from April’s 15% to 11.3% in May, putting the cost of the average home at £154,016. But the Nationwide’s economy team has warned that this latest rise may be a blip.

 

By Joe Lepper

See also: Home Asking Price Index, House Prices and Trends by Town and Postcode, Mortgages

 

 

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