Volume of home loans falls to new low.

                                                                                         

There has been a reduction of almost 40% in the number of new loans for home buying being agreed in the last 12 months. Figures which the British Bankers Association refers to show that from 65,000 in April last year, the total of loans issued in April this year was down to 38,704. This lack of available funds has been brought on by the part played by British banks in the financial disaster which started in the USA, with home loans being handed out against applications from very unreliable borrowers who inevitably defaulted.

This has resulted in a shortage of funds for new home loans in particular and upward pressure on mortgage rates. Nationwide, second in the ‘league’ of mortgage lenders, has reported a 40% reduction in the total value of home loans which they were able to offer in the twelve months to the end of last March.

Speaking on the crisis in homes funding, David Dooks of the BBA agreed that the lack of liquidity which was a factor behind the general fiscal constraints which are now showing, was the major reason for the reduced demand for mortgages and loans, demand for both being well below the levels seen last year. He made the point however that in a search for better deals, the market for remortgaging was very active. The figures for April were offered as an indication that the gloomy outlook was somewhat overstated, with a total
of £18 billion in new lending. Coupled with 150,000 new home loans, in the form of remortgaging, purchases and equity withdrawal, this was claimed by the BBA to be a positive step forward.

The fact is that an increase in April of 3,000 above the March figure, whilst being a move in the right direction, is hardly an indication of a lively housing market. Remortgaging seems to be the move of choice for many, with the search for economies resulting in a surge of 10.7 percent in April (to 74,722) on the figure in the previous April. On the other hand it is claimed that many of these have been forced into this situation by the end of discount and fixed rate mortgage agreements, and are now having to find the funding to cover higher cost monthly repayments.

With this increased pressure for funds coming on top of higher costs for food, fuel, council tax and many other unavoidable items of expenditure, the future for many must look rather grey.

Inevitably there is concern that in reducing home loan availability, the banks are artificially restricting the property market, with the risk of forcing not only
that market but also the whole of the economy into a slump. The decision by the Bank of England to try to get ‘the wheels turning again’ by injecting £50 billion into the banking sector, thus providing funds which would be available through government bonds for the provision of mortgages, may or may not work. The idea was backed by the government because it was felt that the availability of this money would enable the banks to take a rather more relaxed view on the availability of mortgages.

According to the latest available figures it would appear likely however that the banks have taken a different view. It is suggested that mortgages are (as far as they are concerned ) a much lower priority than their own profits, and the Bank of England move has not been received in quite the spirit which was intended.

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