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Mortgage lending rises by 26%, says CML Mortgage lending rises by 26%, says CML
(about 9 hours later)
Gross mortgage lending was up by 26% year-on-year in June as the housing market continued to stage "a meaningful recovery", according to the Council of Mortgage Lenders. Government schemes to inject credit into the economy have pushed mortgage lending to its highest level since the 2008 banking crisis but have failed to spark a revival in lending to cash-strapped small businesses.
Its members advanced £15bn of home loans during the month, the highest monthly figure since October 2008 and an increase of 2% on May's figure. The Council of Mortgage Lenders (CML) said the 26% rise in mortgage lending in June was a sign of a "meaningful recovery" in the housing market, while Savills said house prices were on course to hit their 2007peaks over the next two years. The upmarket estate agent raised its forecast for rises this year from 0.5% to 3.5% and to 18.1% over the next five years.
These figures came at the end of a busy three months for banks and building societies, with lending buoyed by greater availability of high loan-to-value mortgages as well as the launch of the first part of the government's Help to Buy scheme. However, there has been no positive impact on Britain's business community. Amid concerns that the government's Funding for Lending and Help to Buy schemes are fuelling another housing bubble, businesses are repaying loans faster than lenders are granting new ones. Bank of England data showed £4.5bn of lending was sucked out of the business sector in the three months to May, a month when lending fell by £3.8bn alone.
Gross lending for the quarter hit £42bn, a 24% increase on the previous three months and the highest quarterly estimate since the final three months of 2008. "At best, it appears that the Funding for Lending scheme may have stopped lending to businesses from falling more than it has," said Howard Archer, chief UK and European economist at IHS Global Insight.
The CML's previous set of figures, for May, showed that first-time buyers were returning to the market, reaching the highest level since late 2007 when the property market started to go into freefall. Shadow business secretary Chuka Umunna described the figures as worrying while Liberal Democrat peer Lord Oakeshott described the lending data for businesses as diabolical. He said it was a wake-up call to the chancellor that Funding for Lending, which provides cheaper credit to lenders to pass on to borrowers, was not working for the business sector.
It said lenders had become more willing to offer loans to borrowers with small deposits, with money filtering through to the mortgage market from the Funding for Lending scheme launched in August 2012. The reverse is true for mortgage customers as the CML said its members advanced £15bn of home loans during the month, the highest monthly figure since October 2008.
Commenting on June's data, the CML's chief economist, Bob Pannell, said: "Improvements in the cost and availability of mortgage credit are underpinning a meaningful recovery in the housing market. In recent months we have seen the strongest performance for mortgage lending since 2008. These figures came at the end of a busy three months for banks and building societies, with lending buoyed by greater availability of high loan-to-value mortgages as well as the launch of the first part of the government's Help to Buy scheme, under which customers buying new homes can get a five-year interest-free loan for up to 20% of the value of the property.
"However, although the pace of first-time buyer activity is approaching a quarter of a million per annum, it is worth bearing in mind that this is still barely half of activity rates a decade earlier, and so far below what might be considered normal levels." The second part of Help to Buy is to be announced next week when banks and building societies will be offered taxpayer guarantees to encourage them to make mortgages available to borrowers with deposits of as little as 5% on new and existing homes.
The pick-up in demand for properties has started to drive up house prices, and the strong start to the year has led many commentators to revise their forecasts upwards. Gross mortgage lending, which includes loans repaid as well as new ones granted, for the quarter hit £42bn, a 24% increase on the previous three months and the highest quarterly estimate since the final three months of 2008.
The latest is estate agency Savills which has changed its prediction for growth across the UK over the year from 0.5% to 3.5%. Over the next five years it said it expected prices to be up 18.1% up from the 11.5% it was predicting at the start of the year. Lenders had become more willing to offer loans to borrowers with small deposits, the CML said, with money filtering through to the mortgage market from the FLS which was launched in August 2012.
It originally predicted no growth at all in the prime central London market, but now anticipates a 6% price increase. The CML's chief economist, Bob Pannell, said: "Improvements in the cost and availability of mortgage credit are underpinning a meaningful recovery in the housing market. In recent months, we have seen the strongest performance for mortgage lending since 2008".
"A combination of government intervention, improving consumer confidence and low interest rates have come together to make current improvements look more prolonged than the short-lived bounce seen in 2010," the agency said. The pickup in demand for properties has started to drive up house prices and the strong start to the year has led many commentators to revise their forecasts upwards.
The figures come as the government prepares to announce the details of the second part of Help to Buy, which will see banks and building societies offered taxpayer guarantees to encourage them to make mortgages available to borrowers with deposits of as little as 5%. At the start of year, Savills had been expecting prices to rise by 11.5% over the next five years by has now increased this to more than 18.1%. But Lucian Cook, director of residential research at Savills, said that transaction levels were still below pre-crunch levels.
Although some in the property industry have warned that this could cause a bubble, others point out that the recovery is still patchy, with central London seeing very different price growth to other parts of the UK. "[Help to Buy's] launch into an improving market has triggered concerns that the government will provoke another bubble. But in our view these are stated given the conditions which attach to the scheme. Reassuringly, rising market activity has been due to increased turnover of existing debt rather than the creation of new debt that defined the late nineties/early noughties market".
Jeremy Duncombe, director of the Legal & General Mortgage Club, said: "Lenders are loosening lending criteria and this combined with government policy and innovative lender products is also really making a difference. The CML's Pannell noted that activity was below boom period level: "However, although the pace of first-time buyer activity is approaching a quarter of a million per annum, it is worth bearing in mind that this is still barely half of activity rates a decade earlier, and so far below what might be considered normal levels."
"However, despite all the positive indicators from the statistics, it is still a fairly regional picture, with pockets of the country slower to react. With that in mind, it would be unwise to underestimate the positive benefits of stimulus and remove it before the industry is able to support itself fully."
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