Net Mortgage Lending to Go Negative?

Generali

Link

More money is set to be taken out of the housing market than is being put back in for the first time in more than 20 years, economists warned yesterday.
Net mortgage lending - the value of new loans extended minus repayments of principal - could turn negative by the end of the year, economists said following data on mortgage outlays from the Council of Mortgage Lenders. That has not happened since the CML began collecting data in 1987.

AIUI, net mortgage lending has to increase by about 5% pa for house prices to stay steady as older outright owners die and new purchasers who require mortgages come into the market.

As ever, we'll see. I was interested to note this comment at the end of the article from the CML:

In announcing its £37bn bail-out for the banking system last week, the government said it wanted banks to commit to "maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels".

However, the CML immediately questioned the wisdom of lending at the volume and on the terms of 2007, a year in which home buyers could frequently borrow with only a small down payment and at interest rates that were low relative to official rates. The CML has since said it has received assurances that banks are not expected to match 2007 terms.

If the Government has recapitalised the banks partly as a stimulous measure to increase lending back to the levels of last year and a representative of the banks is saying, "We don't want to lend on the same terms as last year", who is going to get their way do you think? The banks or the Government?

Is the Government really going to force the banks into lending unprofitably? After all, in some respects this is what caused this mess in the first place!

baby_boomer

Building society net mortgage lending has been negative for three consecutive months - June, July, August - BSA link

You need to scroll right down to the bottom of this Pdf file link. Third column from the left.

The figures for September are not yet available.

I totally agree that it would be folly to lend rashly for the sake of it. Wait for the housing market to find its proper level, then it will be possible for the lenders to offer first time buyers better deals, with slightly higher LTVs than at present, without compromising either themselves or their customers.

Therefore I can see the negative lending figures continuing for a while.

baby_boomer

Reuters

In fact both approvals and net mortgage lending picked up in September with the banks who account for 2/3 of all current mortgage lending.

"...by 3.6 billion pounds, a bigger rise than in the month before but still below the 6-month average, British Bankers' Association data showed on Thursday. Approvals for new home purchase numbered 23,422 in September, up from 21,342 in August, but still 56.6 percent lower on the year...."

These figures are still very low, or "subdued" as the lenders prefer to put it .

MarkyMarkD

Generali wrote: »

AIUI, net mortgage lending has to increase by about 5% pa for house prices to stay steady as older outright owners die and new purchasers who require mortgages come into the market.

I don't believe that any such formula works.

It depends on the average LTV of the housing stock in the country.

Average LTVs are coming down a lot because of the tightening of lending. So, net lending will be negative because of that single factor irrespective of what happens to house prices.

Generali

MarkyMarkD wrote: »

I don't believe that any such formula works.

It depends on the average LTV of the housing stock in the country.

Average LTVs are coming down a lot because of the tightening of lending. So, net lending will be negative because of that single factor irrespective of what happens to house prices.

I think it's a rule of thumb rather than a formula. What we can say is that an increase of 5% in net mortgage lending in the past has been consistant with stable house prices, lower than this with falling house prices and higher than this with rising house prices.

LTVs reducing won't in itself guarantee that net lending is -ve.

Incisor

MarkyMarkD wrote: »

I don't believe that any such formula works.

It depends on the average LTV of the housing stock in the country.

Average LTVs are coming down a lot because of the tightening of lending. So, net lending will be negative because of that single factor irrespective of what happens to house prices.

Careful with the terminology. LTV's are coming down now for new loans - as you rightly say due to tightening of lending.

But the LTV of the whole housing stock will be rising because the loans are still there, but the values are falling.

MarkyMarkD

I know that. But falling LTVs for the book of existing loans makes no difference at all to net lending - it's a red herring. Falling LTVs on new loans means that lower net lending is required, for the same level of house prices.