Wednesday 28 April 2010

British Bankers Association reports on mortgage lending levels

The British Bankers Association (BBA) reported on mortgage lending levels for March yesterday. As regular readers will know I blog on mortgage lending levels monthly (last month here) however I use the Bank of England data which is currently only published up until February 2010.

The mortgage approval levels according to the BBA were reported as 77,352 for March 2010 which is up from 73,503 in February. This remains below the average of the previous 6 months which was 81,180.
It was reported by the Evening Standard that mortgage lending dropped “sharply after the New Year when the stamp duty holiday for homes worth between £125,000 and £175,000 ended”. This stands to reason and shouldn’t be surprising. In my opinion this was obviously caused by the government distorting the market by doing nothing more than bringing forward future demand. The UK government have now obviously removed stamp duty for first time buyers on properties under £250,000. Will this create yet more distortion by:

- bringing forward yet more demand; and/or

- giving first time buyers that little bit extra deposit, as they no longer need to pay it to the UK government, allowing them to borrow a little more thereby forcing prices up that bit more?

Reasons trotted out for the low lending levels were:

- rising unemployment. This stands to reason however if we were in a fully free market this should also push prices down as some of these people become forced sellers. Of course we know that we are no longer in a free property market. We know to name but two examples that the government are paying peoples mortgages and that they have given the banks the SLS and CGS.  Both of which create distortions.

- an imminent general election. If I was in the Public Sector I’d be getting a little nervous about now so this seems sensible. We know that whoever wins the election is going to have to cut and cut hard. To date in the debates and general campaigning we’ve seen nothing but fluff. Not one of the 3 parties in my view has yet given any meat to how they are going to sort the country’s finances out but whether they like it or not they are going to have to cut. If they don’t the IMF will, just as they will soon force Greece to.

These are two great reasons but they didn’t mention the elephant in the room. Houses are just too expensive in the UK. This didn’t surprise me but it would have been a breath of fresh air to at least find somebody acknowledging it. Sadly it looks like I’ll have to wait for another day for that reason.

As always DYOR

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